LCF Mini Bonds or ISA? Investor Confusion over FCA Terminology
There have been reports that some investors in London Capital and Finance are unhappy with the use of the term "mini-bond" to describe what they purchased from LCF. However the reports just highlight further the confusion from many investors over what they actually bought.
Many people seem to have little understanding of the structure of an ISA and that it is only a tax wrapper rather than a product in its own right. It's partly understandable as most people have no knowledge of ISAs other than cash ISAs.
The London Capital and Finance website also didn't help matters by listing ISAs and bonds separately - in reality they are invested in exactly the same product but the ISA just has a tax wrapper around it meaning no tax is due on any income from it.
The screenshot above shows the LCF website that doesn't make clear that the ISA and bond contain exactly the same mini bonds and that the only difference is that the ISA is tax free - the underlying product is the same.
Unfortunately for investors LCF used misleading and missing information to lure investors in but the reality is that they were sold mini bonds - defined as illiquid debt securities issued by companies to retail investors. This is exactly what the LCF investors bought - they may use the word "secured" as well but as is clear from the administrators secured has no meaning when the assets are either non existent or worth little compared to the value of the outstanding debt.
The important learning point is that ISAs are not just cash ISAs. Too many retail investors don't understand that there are far more variants that involve risk to capital and this is something that the FCA needs to address as well as dealing with the mini bond providers that are selling unsuitable products to unsuspecting punters.
Many people seem to have little understanding of the structure of an ISA and that it is only a tax wrapper rather than a product in its own right. It's partly understandable as most people have no knowledge of ISAs other than cash ISAs.
The London Capital and Finance website also didn't help matters by listing ISAs and bonds separately - in reality they are invested in exactly the same product but the ISA just has a tax wrapper around it meaning no tax is due on any income from it.
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| LCF Mini Bonds or ISA? Investor Confusion over FCA Terminology |
The screenshot above shows the LCF website that doesn't make clear that the ISA and bond contain exactly the same mini bonds and that the only difference is that the ISA is tax free - the underlying product is the same.
Unfortunately for investors LCF used misleading and missing information to lure investors in but the reality is that they were sold mini bonds - defined as illiquid debt securities issued by companies to retail investors. This is exactly what the LCF investors bought - they may use the word "secured" as well but as is clear from the administrators secured has no meaning when the assets are either non existent or worth little compared to the value of the outstanding debt.
The important learning point is that ISAs are not just cash ISAs. Too many retail investors don't understand that there are far more variants that involve risk to capital and this is something that the FCA needs to address as well as dealing with the mini bond providers that are selling unsuitable products to unsuspecting punters.
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