Have I been mis-sold an Investment?

Advice to invest personal money into a regulated/unregulated investment.

There are a huge range of investments where we see mis-selling, but the most common areas of claim involve investments that have made capital losses, usually unexpectedly or dramatically. The products most often associated with such claims are Investment Bonds, With -Profit Bonds, Equity ISA, unit trust portfolios, structured products and ‘Alternative investments.

Most recently we have been asked to recover personal funds invested in ‘mini-bonds’ either directly or through Innovative Finance ISAs(IFISA)

What is a ‘mini- bond’? 

There is no legal definition of a ‘mini-bond’ but the term usually refers to illiquid debt securities marked to retail investors.

A mini -bond is essentially an IOU issued by a company (the issuer) to an investor, in exchange for a fixed rate of interest over a set investment term .At the end of the term the investor’s capital is due to be repaid.

Issuing mini-bonds is not normally a regulated activity, however, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with the FCA rules that a promotion is fair ,clear and not misleading.

Investing in an IFISA, is very similar, in that the ’peer to peer lending ’ investment is often made into a ‘mini-bond’ , with the interest received being fee of tax.

The substantial failure of London Capital & Finance Plc, resulted in the Independent Investigation into the Financial Conduct Authority’s Regulation of London Capital & Finance, carried out by Dame Elizabeth Gloster, DBE, published 23rd November 2020.

This follows on from the House of Commons Briefing Paper, Number 8550,4th June 2020, London Capital & Finance, which stated “an important issue for the FCA is that of its ‘regulatory perimeter’ which constrains what it can do. In the case of LC&F selling mini-bonds was not a regulated activity but advising consumers to buy them would have been.”

The result of this examination of the FCA’s ‘regulatory perimeter’ has been compensation payments to investors in mini-bonds where it is clear a regulated activity has been carried out. See Case Studies Client’s for whom we have successfully recovered their lost personal monies..

Any promotion an investor receives should be ‘clear fair and not misleading’, and advice ‘suitable for the client’s investment objectives and circumstances. Where advice falls short of these directives, mis-selling may result .As with other areas of mis-selling ,the following often applies:

1. Risk- the adviser did not establish your attitude to risk or capacity for loss with you or accurately, as a consequence your investments did not match your risk profile resulting in higher risk investments that lost you money.
2. Understanding-the advantages and disadvantages of the investment strategy were not explained to you or understood by you. An assumption may have been made by the adviser with regard to your level of experience, as in the case of LC&F, investors were assumed to be ‘Sophisticated’. You may even have been asked to sign to the effect that you were a ‘Sophisticated Investor’ even when you were not.
3. Liquidity-the adviser did not establish your requirements for access to your investment, if the investment made was an ‘Alternative’ you may find access to your money restricted by the illiquidity of your investment.

Any of these issues on their own or in combination are representative of a mis-sold product/advice.

Reference Case Study 4. Mrs. W