6 Lessons to learn from the collapse of London Capital & Finance (LCF)

6 Lessons to learn from the collapse of London Capital & Finance (LCF)
“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:

  1. 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.
  2. 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
  3. 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.
  4. 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”?
  5. 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?
  6. 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.