“Things are not always as they seem; the first appearance deceives many.” – Phaedrus
The sickening tale of another failed ‘low risk’ investment scheme, London Capital & Finance, which in this case was widely marketed as a Fixed Rate Cash ISA alternative is outlined in this story and discussed within this Radio 4 Moneybox .
Let’s focus on 6 lessons we can all learn from this failure:
- If you decide to invest in a Bond/ISA that has no Financial Services Compensation Scheme (FSCS) protection, without having taken regulated financial advice, you are unlikely to receive any compensation if the Bond/ISA fails.
- Just because the parent company of a Bond/ISA provider is Financial Conduct Authority (FCA) regulated does not mean the Bond/ISA provider is i.e. Consumer protection may only apply to the promotion of a product and not the actual issuing of the Bond/ISA
- Take great care if using price comparison websites, LCF appeared as a “best buy” on one particular website that was supposedly run by a director of the same marketing company which was paid up to 25% commission (£60M) of the total funds raised by LCF.
- Risk and return are related, if a “low risk” Bond is offering nearly four times the interest rate on offer from market leading Savings Bonds, could this ever really be described as “low risk”?
- LCF’s website had described their products as “…aimed at retail clients who are UK taxpayers and who fall in the category of either High Net Worth Individual, Sophisticated, Self-Certified Sophisticated or Restricted Investor.” Did individuals buying these products directly, and without receiving advice, really understand what they were actually investing in?
- We consistently advocate diversification being the only free lunch when investing. Placing significant amounts of your overall wealth into a single investment is to ignore this fundamental principle.
We have always striven to help our clients become better investors rather than a futile search for seemingly better investments. We believe working together and helping to educate investors leads to a much-improved investment experience. The LCF saga reinforces these beliefs.