Regulated and Unregulated Investments - What's the Difference?
With the action taken against London Capital & Finance it has highlighted that many people are unaware of the differences between a regulated and unregulated investment and the fundamental issues with unregulated products. Some companies selling unregulated investments such as mini bonds appear to deliberately use this lack of knowledge to suit their marketing and snare unwary savers into buying unsuitable products.
London Capital & Finance were selling unregulated bonds that were listed alongside savings accounts on various comparison sites and many people had no knowledge that they were being sold an investment where they could lose all their money.
Misleading adverts like the one above use the word "security" and a tick to give a sense of reassurance. This is meaningless as the investment is NOT FSCS protected and the FCA do not regulate the sale of this product but many people would not know the difference as the words are well hidden.
A regulated investment however will be fully protected by the FSCS in the event of fraud up to £85k for savings and £50k for investments and up to £85k for savings in the event of the bank going bust.
Ironically many people choosing unregulated investments because they believe them to be secure and much safer than investing in the stock market because they've read the regulated investment warnings about value not being guaranteed would actually be much better off from a risk perspective by investing in the stock market.
Collective stock market investments in unit trusts or funds are far less risky than unregulated investments in products such as LCF bonds or Blackmore bonds where you can lose all your money.
REMEMBER - bond is the most misused word for investments and is often used for products that are not savings accounts and are not safe places to put your life savings
London Capital & Finance were selling unregulated bonds that were listed alongside savings accounts on various comparison sites and many people had no knowledge that they were being sold an investment where they could lose all their money.
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| Regulated and Unregulated Investments - What's the Difference? |
An unregulated investment product is exactly that - not regulated by an official regulatory body in the UK. This means it is not covered by the FSCS (Financial Services Compensation Scheme), it is not regulated by the FCA (Financial Conduct Authority) and does not give any right to complain to the Financial Ombudsman. So if the investment goes badly wrong you have nowhere to turn without hiring a solicitor or similar professional to fight your battle for compensation.
Regulated investments have to adhere to a strict set of rules that govern what can, what cannot and what must be said alongside the product. This means that for things like a mortgage you have to have a warning that your home is at risk if you don't pay and for investments you have to have the very clear warning that investment value isn't guaranteed, you may get back less than you put in and past performance is not a indication for the future.
In contrast unregulated investments are bound by none of these rules which is why they are meant to only be sold to high net worth or sophisticated investors who understand the risks and accept that they will only be a very small part of their portfolio. They are not suitable for someone to put all their savings into expecting them to be safe.
As a result an investment such as LCF bonds can make the bold claim as below that they have 100% track record. This would not be permitted for a regulated investment as the previous track record is no prediction for the future as investors are finding to their cost.
It also mentions "full asset backed security" to give a sense of reassurance but again fails to mention that the bond holder / investor will be an unsecured creditor should the business go into administration and that the value of assets may not cover the outstanding value of bonds.
Regulated investments have to adhere to a strict set of rules that govern what can, what cannot and what must be said alongside the product. This means that for things like a mortgage you have to have a warning that your home is at risk if you don't pay and for investments you have to have the very clear warning that investment value isn't guaranteed, you may get back less than you put in and past performance is not a indication for the future.
In contrast unregulated investments are bound by none of these rules which is why they are meant to only be sold to high net worth or sophisticated investors who understand the risks and accept that they will only be a very small part of their portfolio. They are not suitable for someone to put all their savings into expecting them to be safe.
As a result an investment such as LCF bonds can make the bold claim as below that they have 100% track record. This would not be permitted for a regulated investment as the previous track record is no prediction for the future as investors are finding to their cost.
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| LCF bonds adverts |
A regulated investment however will be fully protected by the FSCS in the event of fraud up to £85k for savings and £50k for investments and up to £85k for savings in the event of the bank going bust.
Ironically many people choosing unregulated investments because they believe them to be secure and much safer than investing in the stock market because they've read the regulated investment warnings about value not being guaranteed would actually be much better off from a risk perspective by investing in the stock market.
Collective stock market investments in unit trusts or funds are far less risky than unregulated investments in products such as LCF bonds or Blackmore bonds where you can lose all your money.
REMEMBER - bond is the most misused word for investments and is often used for products that are not savings accounts and are not safe places to put your life savings
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