Sunday, 17 February 2019

Astute ISA Review - Is It Genuine or a Scam?

Yet another ISA has popped up that gives the appearance of being a cash ISA yet it is actually an unregulated investment where you could lose all your money as it is not FSCS protected. It is not a cash ISA but another type called an Shares ISA (S&S ISA) that invests in bonds which are loans to companies.

The risk warning is so small and in such a position that most people won't see it. If you think the Astute ISA is a cash ISA and your money is safe then you are at risk of being scammed.

The promotion appears to be via a company called Savings Explained yet they fail to point out that your money is at risk and the products they are selling are not savings but investments.

Saturday, 16 February 2019

Are Blackmore Bonds an ISA Allowed Investment?

Recently London Capital and Finance had problems when the FCA ordered them to cease marketing their bonds and investigated them for misleading marketing information. It appears that Blackmore Bonds are using some of the same tactics that caused problems for LCF.
Blackmore Bonds ISA advert on Google
Blackmore Bonds ISA advert on Google

As outlined on the FCA website ruling related to LCF for bonds to qualify to be held in an ISA they must be transferable. LCF bonds were not so the LCF ISA was not legally allowed as an ISA.

As the section from the FCA report makes clear London Capital and Finance bonds were not ISA compliant because they couldn't be transferred to anyone else.
FCA ruling on London Capital & Finance
FCA ruling on London Capital & Finance

It appears that according to the Blackmore Bonds website their bonds cannot be transferred either which would suggest that the Blackmore ISA is also not complying with the ISA rules and that the interest is being paid incorrectly as tax free.
Is a Blackmore Bond ISA allowed? Risk statement
Is a Blackmore Bond ISA allowed? Risk statement 
As per the screenshot above which states "The Bonds cannot be transferred to any third party and are not listed on any stock exchange"

This means that any investors in Blackmore Bonds may also be liable to pay tax on all of their ISA investments as well as running the serious risks of losing their capital should Blackmore get into further financial difficulty having lost millions last year.

Friday, 15 February 2019

LCF Misleading Advertising Claims Debunked

London Capital & Finance made 5 bullet pointed claims in their advertising which have been completely blown apart by the events of January 2019 after the FCA acted. Initially FCA forced them to cease all their marketing and then to freeze all their assets before LCF called in the Administrators in late January 2019.

1) Authorised and Regulated by FCA

This was one of the reasons that the FCA forced London Capital & Finance to remove all their marketing. They are not regulated for investments so investors in their bonds are not protected and have no FSCS protection.

2) 100% Track Record

Another misleading statement. Past performance is no guarantee of the future as LCF investors found out when the 100% track record was no more.

3) Full Asset Backed Security

London Capital & Finance made bold claims about the value of assets that were backing their loans. Unfortunately when you investigate these assets they don't appear to be anything physical and in some cases are loans backed by other loans. Hardly the most secure of assets to be risking your investment.

4) Manage and View Your Investment online

A pretty meaningless option as your money was tied up in your investment for between 1 and 5 years so being able to log in to see a fictional number on a screen meant nothing. Investors can still log in and see a number on screen but unlike a bank the number is not true as there is no FSCS protection as investors are now finding.

5) No Setup Costs, No Fees and No Charges

Probably the most blatantly misleading item from the list. According to their accounts London Capital & Finance were charging setup fees and commission amounting to 25% of the bond value. This is 5x the amount that unit trusts used to charge back in the bad old days of high commission sales via advisers.
For an investor to lose 25% of their bond as soon as they hand the money to LCF is extortionate and makes it virtually impossible to recover the original capital.

It certainly isn't something that can be guaranteed as a return.
So far the only one of the 5 LCF advert claims that hasn't been comprehensively debunked is that you can view your investment online. As it was a fixed term and fixed amount that was a pointless facility anyway.

What Commission Did London Capital & Finance pay for bonds?

After seeing the details for the commission & costs of Blackmore Bonds that was being paid to Surge Financial for their part in marketing/selling bonds to investors I had another look at the London Capital & Finance accounts to check the amounts being paid by them for commission.

The lines to look at are the Unamortised costs and amortised costs as shown above. The costs associated costs are a staggering £11.3 million plus a separate item for amortised costs of £3.9 million so total of £15.2 million for £60.7 million of bonds. 

Paying £15.2 million out of a bond issue of £60.7 million is a massive cost for commission and setting up bonds equal to 25% of the £60.7 million of bonds issued to investors.

If LCF are paying 25% of bondholder's money out in commission then they need to raise even more from their loans to cover 8% per year plus 25% to replace the reduction in capital. Just getting 8% interest back will mean bondholders are short of their capital by 25%.

In fact if LCF get 8% interest then bondholders will actually be short of interest as well as their initial capital as they will only be getting 8% interest on the 75% of their money that remains after paying the 25% commission & costs for setting up the bonds.

Unlike with Blackmore bonds we can't say that this was paid to Surge Financial but it was paid to someone - we just can't prove who at the moment.

It makes the LCF advertising even more misleading as they claimed there were no setup fees or costs. Paying 25% setup/commission is way more than any investment product I've seen before.

So far the only one of the 5 LCF advert claims that hasn't been comprehensively debunked is that you can view your investment online. As it was a fixed term and fixed amount that was a pointless facility anyway.

What Commission Did London Capital & Finance pay for bonds?

What Commission Did London Capital & Finance pay for bonds?

Thursday, 14 February 2019

Is it True that LCF Borrowers Never Defaulted?

London Capital & Finance made a big thing in their literature and website that none of their borrowers had defaulted on their loans and that they had a 100% track record.

Reading their most recent accounts to 30 April 2017 might give a different picture. It's not a massive number but it indicates that loans made have been written off.

According to the accounts published at Companies House there were loans of £418,000 that were written off in the year ended 30 April 2017. This isn't a massive number as it's less than 1% of the loans outstanding but it does seem to show that LCF claims that no defaults had ever taken place are incorrect.
LCF Directors salaries 2017
 Also interesting from the 2017 accounts is that the directors of LCF were paid NOTHING! That's right, no director was paid any money as salary. Even the 6 employees of LCF were only paid a total of £96k between them, that's only £16k each on average including all their tax and national insurance costs. Not a massive amount!

Costs of setting up LCF bonds. It appears from the accounts that the costs of LCF paying commission and other setup costs was approximately 20% of the bond value, the same as Blackmore Bonds paid to Surge Financial.

How much do Blackmore Bonds pay Surge Financial as Fees?

The last accounts for Blackmore Bond plc are only submitted to 31 December 2017 so we have no information yet about their latest financial year.

However the information for 2017 gives some insight into the company which made a loss of £7.6 million having sold bonds to investors worth some £25 million. It's clear from the accounts that Blackmore Bonds pay Surge Financial significant amounts for introducing investors

"The loss of £7.6million has primarily arisen from the charging of distribution fees by our partner Surge Financial"

On bond sales of £25 million, Blackmore Bonds paid Surge Financial £5.1 million. This almost exactly matches the 20% alleged for LCF and is a substantial chunk of investors money going out before even being invested and means they need to grow their assets at an even higher rate to recoup the 20% Surge deductions before getting 8% interest.

Anyone considering investing in Blackmore Bonds should already be aware that it is an investment where there is a risk of losing 100% of your money.

If you are in any way unclear about this the accounts are very clear that Blackmore is entirely dependent on new investor money to continue in operation. This sounds very similar to LCF that went into administration in Jan 2019.

LCF Administrators - New Claims Made

The excellent Bond Review blog had a good summary of the initial impression that Smith & Williamson administrators made when they began their work on London Capital & Finance. Some additional information has since emerged from various discussions between the administrators and the owner of a LCF Bondholder Facebook group.
LCF Administrators New Claims
LCF Administrators New Claims

In the summary provided on the Bondholder Facebook group there are some quite startling claims that Finbarr O'Connell has apparently made. S&W have been contacted for comment and I'm awaiting confirmation from them that the statements attributed are correct.

Two claims in particular raise significant questions, firstly a suggestion that problem was that LCF had grown too fast and were trying to recruit a finance director to file their accounts and secondly a statement that LCF had paid Surge Financial (the company that marketed and handled the customer contacts for LCF) money to underwrite the loans.

1) London Capital & Finance Problems due to lack of Finance Director

The suggestion that LCF problems were due to growing too fast and failed to file accounts because they were trying to recruit a finance director at the time of the FCA investigation seems to ignore the facts. LCF repeatedly delayed accounts 18 months ago so if a problem was identified then they had nearly 2 years to fix it. More crucially although the amount of money had increased from £60 million to £236 million the number of borrowers was essentially unchanged at 12 companies compared to 11 previously. If existing borrowers are just being handed more money then what difference would a finance director make? The issues that the FCA identified would appear to go way beyond not having a finance director when the company has entered administration and been shown to be lending money to companies associated with current or former directors of LCF.

2) Surge Financial Underwrote Loans for London Capital & Finance

This is quite an intriguing suggestion that has not previously been mentioned in any information about LCF. It would be interesting to know if this is backed up or if it is a misunderstanding of the conversation from someone who isn't expert in financial matters.

If the payments made to Surge Financial were for underwriting loans instead or as well as commission for sale of bonds then it may make little difference or it could create another avenue of liability for investors to pursue.

3) Keep trading companies out of the press

This is a sensible idea in theory to avoid any negative publicity that may affect the companies that have borrowed money from LCF. However it ignores the fact that 2 of those companies are publicly listed on stock market and have already released statements of their own to the stock market and press. It also fails to recognise that those 2 companies have NOT borrowed from LCF themselves, they borrowed from a company that itself borrowed from LCF.

This statement also fails to mention the other "non trading" companies that appear to have had no activity on their accounts for the last 3-4 years