It was with great sadness this week I read of the suffering caused by the demise of London Capital and Finance (LCF), which went into administration in January. It’s not the company I feel for. It’s the 11,600 people who invested a total of £236m and look set to get very little back.
The collapse came after a Financial Conduct Authority (FCA) investigation into misleading advertising. LCF had been advertising interest rates of around 8% over three years on things called mini-bonds, and those are apparently very risky investments. But the punters, most of whom were inexperienced first-time investors (putting away inheritances, etc), thought they were being sold safe fixed-rate ISAs.
Tip-off
It appears a number of independent financial advisers reported what they saw as misleading and inaccurate advertising to the FCA as long ago as 2015. Our intrepid financial guardians then leapt into action faster than a speeding glacier, and took bold action… in December.
Can it really have been three years between the FCA first being alerted to the potential problem and actually doing anything? That’s three years in which thousands more investors handed over their cash and have almost certainly lost most of it?
The Serious Fraud Office is on the job too and has apparently felt a few collars. But that will be scant comfort for those who have waved goodbye to the bulk of their retirement savings.
So what can ISA investors do to protect themselves against the misleading selling of investments?
Caution
First thing is to be wary of unusually high interest rates, though it might not always be obvious. In this case, though cash ISA rates are typically only around 1.5% per year, there are some legitimate fixed-term introductory offers out there. LCF was offering 3.9% for a year, 6.5% for two years, and 8% over three — and those are not outrageously above some genuine offers I’ve seen.
You could use a reputable comparison site and search for the best ISA rates. But if the one you were thinking of is better than the best they can come up with, steer clear. In fact, if you only choose companies which can be found via the top comparison sites (which would not have listed LCF under ISAs), you’re probably a lot safer.
Also avoid companies you’ve never heard of. ‘London Capital and Finance’ might sound reputable, but upstart investment firms often combine common finance-related words to make professional-sounding names. So just seeing words like capital, finance, mutual, fidelity, global, asset… means absolutely nothing.
Reputation
If you stick with big and well-known investment companies, you’re likely to be safe. And if you have any suspicions at all, just keep away.
My approach to ISA investment is to go for a Stocks and Shares ISA with a well-known, execution-only provider. That way you’re getting no promises, you are totally in control of your own money, and you can take it out any time you want.
That’s for long-term investments. But if you’re likely to need the cash within the next five years, I’d say just stick it in a bank savings account.
One last thought — the FCA recommends checking an investment firm is FCA-authorised. But London Capital and Finance was (and still is) FCA-authorised…