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It’s been more than a decade since interest rates held any real potential for savers. As a result, any financial products that have a substantially higher rate of interest seem very attractive. London Capital & Finance plc (LC&F) offered a “Fixed Rate ISA” product with returns of 8% for those who were wiling to lock their money in for at least three years. However, the firm has now gone under and has taken most of investors’ money with it. So, what are the lessons that can be learned?
Essentially, what LC&F was offering was a high-risk bond scheme that generated £236 million in investments after an intensive marketing campaign that included lots of content on Facebook. The company has now collapsed and is in the hands of administrators as a result of not being able to pay its debts. Unfortunately for those who invested with LC&F it’s thought that the bondholders could get as little as 20% of their money back.
Although the LC&F said that it was targeting experienced, high net worth individuals with its financial products, in reality many of those who ended up putting their money into it were actually inexperienced investors. In fact, potentially up to 50% of those who invested arrived at the product via a basic online search for terms like “best ISA.” Search engines took them to two “comparison” websites – topisarates.co.uk and bestsavingsrates.co.uk. Both of these websites rated LC&F right at the top of their comparison lists.
Both of these websites are owned by a company that is owned by Paul Careless. What’s problematic is that Mr Careless also owns another company that was paid £60 million to handle the marketing for LC&F, indicating that the “comparison” websites may actually have been nothing more than a marketing tool. The connection is of great concern to investors who have now lost their money as a result of the collapse of LC&F and many feel they were misled into believing that the investment had been independently compared and highly rated.
LC&F loaned the money it collected from investors to 12 companies but would have had to have seen a huge return on it in order to be able to deliver the 8% interest it advertised. According to administrators it’s going to be difficult to get much of the £236 million that was invested back. Plus, the investments weren’t regulated, which means they are unlikely to be covered by the Financial Services Compensation Scheme (FSCS) – so far there has been no indication that the scheme will pay out.
For those who invested in LC&F the outcome looks bleak with no compensation scheme cover and a likely recovery of just 20% per investment. Hopefully the lessons that can be learned from the debacle may prevent a similar situation arising in future.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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