The recent failure of a promoter of high return investments was a reminder of the dangers of being lured by headline numbers alone.
Last year, London Capital and Finance Plc (LCF) marketed what they claimed to be Innovative Finance ISAs offering fixed interest rates of 8% – and this was at a time when no fixed rate cash ISA offered even half as much return. Unfortunately, LCF’s 8% rate did prove too good to be true. In January 2019, LCF called in the administrators and two months later HMRC announced that the LCF ISAs did not comply with ISA regulations and their income (while it lasted) was therefore taxable.
Investors may only receive back as little as a fifth of the amount they invested. While LCF itself was regulated by the Financial Conduct Authority, the mini-bonds issued by LCF to back their ISA were unauthorised and not covered by the Financial Services Compensation Scheme.
Ironically, investors might have had a chance of compensation if a regulated financial adviser had (badly) advised them to invest in LCF. However, LCF only sold its products direct to customers.
The lesson from LCF is an old one: investment without advice may look a cheap option, but it can carry its own heavy cost.
Whilst attractive, high return investments can be risky, as investment values and income can go down as well as up, and in the worst case scenario you may be the victim of a scam. Always seek appropriate financial advice from a reputable advisor and be wary of investing in products directly without seeking advice first.
The value of your investments and the income from them can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term and should fit in with your investment overall attitude to risk and financial circumstances.