Financial failures can touch us all

Financial failures can touch all of us, whether we know about it or not

Back in 2019 we looked at 6 lessons to learn from the failure of London and Capital Finance, which, by way of brief refresher, was a heavily promoted and supposedly secure investment, promising investors an 8% per annum investment return over a 3 year period.

I’m not going to dwell any further on the actual investments, for a gory post mortem you can read this brilliant story How London & Capital scandal played out.

However, even if you were wise enough to steer clear of this calamity and other similar ones, see German Property Company collapse and don’t think you may not be indirectly affected.

We often refer to the Financial Services Compensation Scheme (FSCS), which is designed to protect investors and savers against poor regulated financial advice and the failure of some companies.

The FSCS is described as “free to consumers” and funded by the regulated financial services industry, which, in principle, we’re in complete agreement with. Without any protection, might fewer and fewer people actively seek financial advice?

So, what’s this got to do with London & Capital?

London & Capital was not a financial advice firm, was not authorised to give financial advice and employed no financial advisers.

Compensation claims have flooded in from investors caught out by London & Capital and the FSCS has already started making payments. To date, £56.3M has been paid out to 2,878 investors (average £19,500 per investor) but none of these compensation payments are in connection with advice from regulated Advisers.

Regulated Advisers are now being asked for additional payments into the FSCS to support these payments and so the vicious circle continues. Advisers who warned clients away from London & Capital are now directly paying for poor advice from non-regulated companies or Advisers who contribute nothing towards the cost of FSCS.

Please don’t misinterpret this commentary as a “cry for help” or justification if we ever discuss with you the increasing cost of providing regulated financial advice, it isn’t.

But the current regulation and compensation schemes need an urgent rethink. We simply can’t continue with a system that means those investors willing to take on the risk of DIY investing can, at times, fall back onto a system which is designed and funded by those who have sought and paid for regulated advice.