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Article

If it’s too good to be true …

Article

If it’s too good to be true …

March 22, 2019

3 minute read

Recent press has been pretty vocal on who, having taken in c£263m from investors, went into administration with the potential loss of most of that money.

Recent press has been pretty vocal on the demise of London Capital & Finance who, having taken in
c£263m from investors, went into administration with the potential loss of most
of that money.

LC&F marketed a series of ‘asset-backed bonds’ promising
returns of between 3.9% for 12 month and 8% per annum over three years.  They claimed the investments were eligible to
hold within an ISA, that they had a 100% track record in paying back the
capital and interest and that there were no set up costs, management fees or
charges.  So what went wrong?

Looking at the marketing, there are a number of things that
should have rung alarm bells.

  • No set up costs, no management fees, no charges
    (‘no income tax, no VAT, no money back, no guarantee’ as Only Fools and Horses
    would have it).  So where would they make
    their money?  What they did do that we
    know of was pay 25% of the investments to another company to “market” the
    products.
  • Returns of 8% per annum over three years.  That’s pretty good going in the current
    environment even from a portfolio of nothing but shares. Yet this was
    supposedly interest generating, asset backed and the implication being pretty
    much guaranteed and in the material compared to rates on deposit.  There was a ‘Capital at Risk’ statement in
    there somewhere however, the whole feel was of a guaranteed cash equivalent
    interest return.  With cash rates around
    2% for that sort of term, if anyone is offering 4x cash then you have to ask
    “How?” and probably “Why?”.  If the
    return is more than you can get in cash there has to be a risk and the higher
    the return above cash the higher the risk.

As far back as 2015, an Independent Financial Adviser had
raised concerns about the marketing of this product with the regulator, the
Financial Conduct Authority.  According
to their later comments, it appears that LC&F were never authorised to sell
bond or ISA products.  Yet it wasn’t
until December last year that the FCA took action against LC&F and in
January this year the company went into administration.  A large chunk of the money by that point had
been borrowed by the founder of LC&F for other projects of his.

Another sorry tale of misled investors, life savings
destroyed and a failure by authorities to prevent the disaster.  What we learn from this is what we have
learned from previous problems :

  • Beware direct marketing;
  • Beware anything that claims not to have charges;
  • Beware anything that looks “safe” but promises
    returns in excess of the best cash returns;

If in any doubt, ask an expert, as a client of the IFA
mentioned above did in 2015, much to his relief

Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

Need expert advice?

Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you

Email
info@shawgibbs.com

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