Mini-Bonds: Can You Get Your Money Back?

With just a handful of investors likely to get their money back after the collapse of mini-bond firm LC&F, savers must know how to avoid inappropriate investments

James Gard 9 January, 2020 | 2:29PM


The slim hopes of investors in failed mini-bond firm London Capital & Finance (LC&F) have been dashed after the Financial Services Compensation Scheme confirmed that only around 1% of bondholders will definitely get some money back.

The FSCS is a lifeboat scheme, aimed at compensating investors who have lost out financially when, say, their bank collapses or they have been missold an investment. But it does not cover every eventuality. 

 Excluding the other 283 bondholders who aren’t due compensation because they bought the mini-bonds before LC&F was authorised by the FCA, the remaining 11,158 bondholders will now have to wait to have their claims assessed on a case-by-case basis.

Now that the FSCS has made its initial decision, what are financial advisers suggesting their clients do next?

What Happens Next?

Advisers contacted by Morningstar are not optimistic about the chances of LC&F investors getting their money back.

Justin Modray, of Candid Financial Advice, says: “Those LCF investors not covered by the FSCS really have nowhere to turn now. This sadly highlights the risks of buying unregulated investments.”

Peter Chadborn, director of IFA firm Plan Money, says he would be counselling clients – if they had invested in LCF – to expect the worst.

The 159 bondholders, who transferred their savings out of their stocks and shares Isas into LC&F mini-bonds, will receive compensation in February. The official line from the FSCS is for everyone else to wait: “LCF customers do not need to take any action at this stage.”

The FSCS says it will take a significant amount of time for it to look at the remaining thousands of claims, and is likely to provider an update at the end of February. The process involves going through all communications received by customers from LC&F and its marketing arm Surge Financial, including listening to phone calls from clients and going through emails.

But the FSCS conclusion was bleak: “Based on its investigations so far, FSCS believes many LCF customers are unlikely to be eligible for compensation on the basis of misleading advice.”

What is Advice?

Much of the problem is around the issue of determining whether investors were actually advised to invest in the minibonds. The FSCS argues that “advice does not necessarily mean that a personal recommendation – such as ‘you should invest’ or ‘I recommend that you invest’ was made."

It says there there needs to be more than just the provision of information for something to count as advice. 

LC&F administrators Smith & Williamson said last year that some members of LC&F staff may have given advice to customers despite not being trained to do so.

The scandal highlights more than ever the need to get a professional opinion before you invest, but it also brings into question what constitutes “advice”. 

The FSCS says “being given incorrect information on its own does not constitute misleading advice”.

LC&F was authorised to carry out financial services in 2016, which led many inexperienced investors to think that their capital was protected, but its mini-bonds were unregulated, so would be unlikely to be recommended by IFAs. The FSCS is still looking into the scandal and considering whether LCF’s promotional activities in themselves constitute advice.

Chadborn says the high-profile nature of the LC&F scandal has caused clients to worry, even if they aren't invested in the bonds. He thinks this is another instance where having an adviser is valuable, as many clients are reassured their adviser can protect them from these type of schemes. "But LCF’s collapse has still put a massive dent in consumer confidence in the financial services industry," he adds. "The wider public is right to ask to the question: How can a company like LCF promote their wares with free abandon, without just relying on ‘buyer beware’?”

Chadborn thinks the key is better signposting of unregulated investments in the future, although he admits that there is still uncertainty among the public about what that really means.

What Happened to LC&F?

London Capital & Finance went into administration at the end of January 2019, with 11,600 investors holding mini-bonds worth £237 million. LC&F was the highest profile mini-bond firm to go under, but many smaller firms also went bust in 2019. The Serious Fraud Office arrested a number of people connected with LC&F and investigations are ongoing.

The firm marketed and sold high-interest bonds that were not covered by the Financial Services Compensation Scheme (FSCS), which protects all UK-regulated cash up to £85,000 per person per institution. Cash Isas are included in this protection, for example.

Many bondholders thought incorrectly that their capital in LC&F was protected because the firm was authorised by the FCA to conduct financial services. It advertised bonds offering an 8% yield and above and many investors thought that these were cash-like investments rather than securities that go up and down in price.

Last year the FSCS did, however, offer a glimmer of hope to bondholders that some investors may be due some compensation. The latest update has been eagerly awaited by those who invested in LC&F – not least because it’s been nearly a year since the firm went under. The FSCS’s Caroline Rainbird acknowledged the delay and that the “the initial decisions and outlook we are announcing today are likely to be disappointing to many LCF customers”.

The FCA came under fire for its slow reaction to the mini-bond crisis, banning the sale of these products to retail investors in November last year. Chief executive Andrew Bailey, who is about to become Bank of England as Governor, denied the regulator was “asleep at the wheel” over the crisis, but he told MPs the FCA needs to do better at regulating the more murky aspects of financial services. The regulator itself is being investigated by the Treasury over its response to the collapse of LC&F.

How to Avoid an Inappropriate Investment 

Situations such as the collapse of LC&F highlight the importance of choosing the right investments in the first place. Here are some of the key steps you should take when considering any investment: 

Check it's Authorised - Look on the FCA's register to check the business is actually authorised to conduct financial services businesses. Do an internet search for reviews of the company to find out more about what its customers are saying about it too. 

Understand the Risks - Be certain what the product is and where your money is going. Be wary of any product promising "guaranteed" or "government-backed" returns or too-good-to-be-true interest rates. If it's an investment, your money is always at risk. 

Take Advice - If in doubt, seek help from a professional. Many people are reluctant to take financial advice because it seems expensive or they don't want to discuss their finances, but as with any area of life it pays to speak to an expert if you lack the knowledge or confidence. 

Don't be Pressured - You should never rush any financial decision and if anyone is pressuring you to make a quick choice, say no - it could be a scam. Any reputable company should be more than happy for you to take time to do your research and think about whether you want to invest or not. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

James Gard  is content editor for

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