Insurance or Guarantee of Invested Funds

Hey Mary.

The government guarantee refers essentially to bank accounts, correct.

There are two short blog posts Pearler has created around this topic which might help:

«Why your shares are safe with Pearler» - https://pearler.com/explore/learn/blog/why-yo...

«Why your cash is safe with Pearler» – https://pearler.com/learn/blog/why-your-cash-...

Basically, your shares/investments will be moved over/transferred to another broker if something happens to Pearler. You are always the owner of the assets. CHESS means your name is recorded with the Australian Securities Exchange (ASX) as the legal owner of shares. Pearler or other CHESS sponsored brokers are really just the middleman helping you buy these assets.

My understanding is Micro is run a bit differently, given the functionality it offers. In this case (unless someone can explain better!), the Micro funds are operated like a managed fund which is held in trust with you as the beneficial owner. Again, if something were to happen with Pearler here, my understanding is that the Micro funds can be passed on to another financial institution to manage on your behalf.

Hope that helps :)

Dave

Hi Mary!

Owen Rask here. You’ve touched on a really good — but technical — point, the way custody and stock ownership works in Australia.

To be clear: I can only provide general financial information, especially on this topic. So, please, always read the T&C’s, product disclosure statement (PDS) and financial services licensing information (and verify a broker’s AFSL via ASIC’s website because you click a link to their website). And before acting on this information speak with an adviser or lawyer.

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Over at Rask HQ, we’ve just recorded another episode of our Australian Finance Podcast series talking about brokers (not just Pearler, but all of the most common brokers in our community). It’ll be aired in the next 2 weeks.

The key distinction you touched on is the difference between HIN/CHESS-sponsored platforms and custody models.

Custody models are most common overseas — for example, for US shares, as far as I know every platform uses a custodial model. This means that the broker for a US investor (or an Aussie investor looking at US stocks) enters into an agreement (even if they may not know it) with a complex web of providers (the broker, trustees, service providers, the custodian themselves, etc.).

The key difference between, say, a crypto provider (e.g. FTX) and a legitimate financial services organisation is the financial services business is properly regulated. For example, in the US, you have organisations like the SEC, Securities Investor Protection Corporation (SIPC), banking regulators, state & federal laws, the police, etc. Protections come with a ‘cost’ — but I’m happy to pay it!

Advocates of blockchain try to get around this, but at the end of the day the organisations ‘centralise’ regulation for the sole reason of protecting investors. Sure, brokers can still go bust. And people can still do the wrong thing. It’s just more difficult for regulated firms.

Managed funds («mutual funds» in the US

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