I had expected that my comment would have been focused on Brexit but as I write, the EU have just granted the UK another extension, putting the ‘final’ date back to 31 October.
In that six months, we will no doubt see more deal wrangling as the politicians try to resolve the issues set in motion almost three years ago and cut a good deal with the EU – a process, of course, over which the ordinary citizen now has no direct control.
So, I am turning my attention to an area where as Independent Financial Advisers we can have an impact and that is in avoiding bad deal investments.
I was disappointed but not surprised by the recent collapse of London Capital & Finance (LCF), which left thousands of retail investors facing losses of 80% or more.
I was disappointed because many of these people were first time investors and events like this damage the public’s faith in financial services, which is bad for savers and investors and for the industry. But I was not surprised because no Independent Financial Adviser worth their salt would have exposed their client’s capital to the arrangement.
Promoted via slick marketing as a “Fixed Rate ISA” offering interest of up to 8% over three years, there were enough ‘red flags’ to alert any professional that it may not be as secure as the promotions would have had you believe. A quick look ‘under the bonnet’ and we were certain it was not something we would invest our own money in, and as such, certainly not something we would let our clients near.
At Lowes, we start from the premise of being very sceptical and risk averse –with close to a fifty-year track record of successfully guiding our clients towards safe profits, we will not risk our reputation, let alone our clients’ money.
The LCF bonds were a breed of Peer-2-Peer (P2P) investment, a sector that we have been following for well over a decade. Despite the sector becoming regulated by the Financial Conduct Authority in 2014, it is only recently that we became comfortable recommending any P2P solution.
Peer-to-Peer uses technology to match lenders with borrowers with the objective that both parties will receive a better deal by cutting out the traditional banks and building societies. Lenders can obtain a potentially higher rate of return than from a typical bank deposit and borrowers get a cheaper loan, as well as the whole process being faster.
Some P2P arrangements will lend investors’ money for almost any purpose, some concentrate on lending only to businesses – and most lend without obtaining any security to protect against the borrower defaulting. As you might expect, the higher the risk of the borrowers defaulting, the higher the returns on offer.
We review and test platforms by investing our own money and providing feedback to help improve the platform propositions, before we expose any client. To date, there is only one P2P solution we are prepared to recommend to clients, if asked to do so, and only because of its unique features that serve to safeguard investors / lenders capital, including only making loans that are secured against UK property. That does not mean it is without risk but may be appropriate as a part of a diversified portfolio.
There are people who do not appreciate the value in employing the services of an Independent Financial Adviser, but we are sure that many of those London Capital & Finance investors may have just learned the hard way that the cost of not doing so, can be very considerable indeed.
As ever, if you know someone who will benefit from our services please do not hesitate to put them in touch.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.