Unregulated mini-bonds

The current investment landscape can be challenging for investors to navigate, with interest rates at record lows and likely to remain that way for a considerable period of time.  Savers can no longer rely on deposit rates to generate the returns they require from their capital and this is forcing many investors to look at higher-yielding alternatives in a bid to maximise the long-term value of their savings.

In response to this demand, we have seen offerings aimed directly at private investors called mini-bonds.  These typically offer a fixed rate of return and are structured so that the investor lends their money for a variety of underlying purposes.  The fixed-rate nature of these investments gives the impression that the capital is secure and that the returns have a high degree of certainty attached to them and may even be perceived as being guaranteed.

However, these types of investments are not regulated by the Financial Conduct Authority (FCA), nor are they covered by the Financial Services Compensation Scheme (FSCS), giving investors in these products very little in the way of regulatory protection or safeguarding over their funds.

Over the past few years, an increasing number of these mini-bonds have failed or are experiencing severe difficulties.  In several cases, this has led to investors losing all, or most, of their capital.  The reasons for the collapse of these bonds varies.  In some cases, the underlying funds have simply never been allocated to the investments outlined to clients.  In other cases, such as London Capital & Finance (LCF) or Secured Energy Bonds (SEB), client funds have been funneled through a complex web of interrelated companies, effectively being fraudulent ventures.

Spotting investments of this type or of a dubious nature can be very difficult as slick marketing and professional-looking brochures and websites often mean that these investments look appealing and appear to operate in a similar manner to regulated investments.  Investors should take the following steps when considering an investment:

  • Check that investment is regulated by the FCA
  • Check whether the investment is covered by the FSCS
  • Check the track record of the investment manager in delivering quoted returns to investors consistently over a number of years

You should always bear in mind the old adage; “if something appears too good to be true it probably is.”

If you are ever cold-called or marketed to directly about an investment then it is highly probable that the investment being offered is not legitimate.  You should always call us if you receive any of this marketing and are considering an investment so that we can help you decide whether it is a real opportunity or not.

A number of clients who have failed to heed this advice have found themselves at the wrong end of these investment scams with no recourse to recovering their money.

Foresight are experts in managing clients’ funds and advising on appropriate investment strategies.  Our Investment Committee examines a huge range of investment options and only recommends a small percentage of these for our clients.

If you have capital to invest or wish to review your current investment portfolio, please contact us so that one of our Wealth Strategists can discuss your personal requirements with you in greater detail.