Just a couple of weeks ago a friend pointed out a Facebook advert to me. It was titled “Marks Money Matters”. It was advertising a fixed rate ISA with a return of 8%...
I wonder how many people have just read that and thought, “ooh that sounds like a good deal, I’ll have a look”? I really hope your reaction was that of a healthy cynic. It sounds too good to be true right? Don’t bother looking for it, you won’t find it now. The FCA asked London Capital & Finance to take down their advertising which appeared to be written by Mark, a retired bank manager from the Cotswolds, it all sounded very convincing. The advertising did mention the FCA and it did say “your capital is at risk”, a standard warning.
When I asked around at the office, apparently we had a few phone calls about the advert.
“I can get 8% on the internet, what can you offer?” was an interesting start to a conversation one of the planners had. The planner talked to the client and explained the risks and they proceeded to invest in an alternative more secure investment. It was a good job that the client picked up the phone as London Capital & Finance has since gone into administration and investors will be lucky to get back 20% of what they put in.
The saying goes that a little bit of knowledge is a dangerous thing and it is so true in our line of work. People associate ISA’s with low risk. You can get a very low-risk cash ISA from a UK bank, you will be covered by the Financial Services scheme as long as you don’t have more than £85,000 with that bank. The rate of return will be small but you won’t lose your money. However, there are lots of other investments that can be sheltered in an ISA and they can be much higher risk, shares for example.
The bond instruments within the London Capital ISA were not straightforward and were probably not suitable generally for private investors. They might be the sort of thing you would find inside an institutional fund where risk is spread across different asset classes.
However, when you read the headline 'fixed rate ISA…8%', maybe people just don’t read the small print.
Not everyone wants to take professional advice, it costs money which can be frustrating when you are looking to maximise your returns. However, researching your own investment strategy is a bit like going on holiday with a tour operator not covered by ABTA…except you might lose more than a few thousand pounds.
The compliance bit:- you should be aware that investments carry varying degrees of risk and as their underlying value can fall as well as rise you may not get back the full amount invested.