The City regulator has announced plans to ban the advertising of so called Mini-Bonds, high-risk investments known to be the cause of significant losses to individual investors.
Tempted by the returns promised on these speculative investment bonds, often much greater than mainstream investment products, armchair investors have been investing independently in these products, usually without any independent financial advice. However, they have been at the heart of scandals, such as the collapse of London Capital & Finance (LCF) when 12,000 people lost money.
The Financial Conduct Authority (FCA) marketing ban starts in January 2020 and will initially apply for for 12 months, while the FCA considers permanent rules.
What is a Mini-Bond?
The Financial Conduct Authority described a Mini-Bond as being a kind of IOU issued by a company to an investor. In return, the investor receives a fixed rate of interest over a set period of time. At the end of this period, the investors’ money is due to be repaid.
The return on investors’ money entirely depends on the success and proper running of the issuer’s business. If the business fails, investors may get nothing back.
The ban applies to arrangements where funds raised from a mini-bond are used to lend to a third party, invest in other companies or buy properties.
The FCA only has power to intervene in marketing – not in the sale of the products themselves.
The regulator said they could still be marketed to “sophisticated investors”, who could declare themselves able to understand the risks, or high net-worth individuals with an annual income of more than £100,000 or net assets of £250,000 or more.
Should Redwood Clients be Worried?
We do not offer Mini-Bond within our portfolio as we believe the risks are far too great for our Clients.
At Redwood, we believe in helping you find the right products to meet your personal needs and investment ambitions. We work with you to identify your unique requirements, aspirations, and risk adversity, developing a broad investment portfolio that has total transparency about all your options and the potential benefits and risk.
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You can read the full BBC News article on Mini-Bonds here