Section:GDN 1N PaGe:50 Edition Date:190907 Edition:01 Zone: Sent at 6/9/2019 11:51 cYanmaGentaYellowbl
- The Guardian Saturday 7 September 2019
(^50) Money
On refl ection
Patrick Collinson
S
hould investors who
buy high-risk bonds be
compensated when things
go wrong? The obvious
answer is no, with the clue
in the word “risk”. But
what if a bond is marketed to small
investors with a “quarterly interest
rate”, and is approved for inclusion
in an Isa, and is promoted by a
fi nancial advice fi rm authorised and
regulated by the Financial Conduct
Authority. Would you expect the
bond to lose not just the interest, but
all the money you deposited?
This is the type of scenario
in which many investors in so-
called “mini-bonds” have found
themselves. About 11,000 investors
in London Capital & Finance’s mini-
bonds could lose a total of up to
£236m , in one of the worst fi nancial
scandals for a decade.
Four years ago we fi rst reported
on the £7.5m lost by investors inWhy the FCA should protect
investors in high-risk mini-bonds
Continued Page 49holders). But there is a big problem
for savers: it is now cheaper for the
government to raise cash on the
money markets instead, which it
does by issuing bonds.
Sarah Coles of the investment fi rm
Hargreaves Lansdown says: “At the
moment, the enormous uncertainty
in the market means investors want
bonds and are willing to accept low
yields in return .”
Meanwhile, the latest data from
Moneyfacts shows that across the
market, average fi xed savings rates
have been steadily falling. It said the
average rate on a fi ve-year fi xed rate
savings bond, assuming a £10,000
investment, stood at 1.94% on
Wednesday.
That is down from 1.95% last
Sunday, 2.01% at the start of August,
and 2.08% on 1 July. It is a similar
story over shorter terms: the average
rate on a one-year fi xed rate bond
was 1.35% this week, but stood at
1.44% at the start of July.
Rates might be falling, but Ray
Boulger at the mortgage broker John
Charcol – who track s gilt yields – says
that if you are a saver who has some
money you don’t need right now,
there is an argument for locking it
up for a year or two on the basis that
over the next few months, rates are
more likely to fall than go up.
So what can you do?Secured Energy Bonds, followed
soon after by the collapse of £8m
worth of “Providence” bonds.
More recently investors in Kevin
McCloud’s HAB mini bonds have
been warned of hefty losses.
Mini-bonds are just an IOU to
a company, are rarely secured
on anything, and are usually
completely illiquid and cannot be
traded. They are simply too risky
for the average small investor. As I
wrote in 2015, if you see a promotion
for a mini-bond, “ just bin it”.
But I also highlighted the peculiar
role of the promoters of these
bonds, who carry an FCA-regulated
halo, but who are selling products
which are completely outside the
regulatory environment and have
zero investor protection. In the
case of Secured Energy Bonds, they
were promoted by an FCA-regulated
company that was the “security
trustee” that would safeguard theassets. Except they didn’t.
SEB investors got the cold
shoulder from the fi nancial
ombudsman in 2016, but a
redoubtable group, led by Fiona
Pitkeathly, weren’t going to give up.
Last year, in a remarkable U-turn,
the ombudsman service conceded
that the FCA-regulated promoters
should have spotted the fl aws in
the bond’s security. They are now
receiving payouts from the Financial
Services Compensation Scheme.
But as Pitkeathly points out, their
problems could have been avoided
but for a glaring hole in regulations.
As things stand, when an
FCA-authorised fi rm approves
an investment as “fair, clear and
not misleading” on behalf on
a non-authorised fi rm, this is,
bizarrely, not classed as a “regulated
activity”. This means that fi rms that
negligently or intentionally approve
these investments are not subject
to any regulatory sanction. If they
were, there would be a lot more self-
policing of these products.
The FCA is itself subject to a n
independent investigation over
its handling of the LC&F debacle.
Given how the ombudsman ruled in
favour of SEB investors, it’s diffi cult
to see how the FCA can wriggle out
of responsibility for the much bigger
losses incurred by LC&F investors.[email protected]- Take advantage of the deals
still out there. At 1.45%, the
Marcus interest rate is still decent.
Meanwhile, Shawbrook Bank has an
easy-access account paying 1.48%.
In terms of fi xed-rate bonds, Bank of
London and t he Middle East tops the
Moneyfacts tables – it is paying 2.1%
over one year and 2.45% over three
years (these are expected rates).
Aldermore and Paragon are both
paying 2.25% over fi ve years. - Make use of the savings accounts
that come with a 25% government
bonus. These are the lifetime Isa and
the help-to-buy Isa. Paltry interest
rates are less important if you are
getting hundreds or thousands of
pounds of free cash. - Consider an off set mortgage. If
you have a mortgage, plus a decent
amount in savings that you want to
hang on to but is probably earning
very little interest, it may be worth
considering an off set home loan,
says Boulger. These mortgages link
your savings to your home loan,
so your savings balance is used to
reduce – or off set – the interest you
pay on your mortgage. - Keep it in the family. Ultra-low
interest rates may mean more loans
and handouts from the Bank of
Mum and Dad. “The lower the return
you are getting on your savings, the
more value there is in helping out a
child or grandchild with a deposit,”
says Boulger.
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