“Mini-bond” provider London Capital & Finance (LC&F) has recently gone into administration with the 14,000 people who invested money in the company expected to lose 80% of their capital. At the time of writing the company still had a 4.8 star rating on review website Feefo, without a single 1 star review.
Recent reviews include “Clarity when explaining products on offer. Nice people to deal with.” That may appear to be a fantastic endorsement but should it come as a surprise that they are “nice” when it comes to parting you with your money? What qualifications does the reviewer have to be sure that the products were correctly explained?
Review sites do have a place for consumers researching what products and services to buy. When booking a holiday, I spend a lot of time reading the reviews on trip advisor and I’m willing to put my faith in the experiences of strangers to decide which hotel to book. However, the reviewer will have experienced the whole hotel. Reading Feefo, most reviews most relate to opening the account. Is this really the basis on which you should make an investment decision? It would be the equivalent of booking a hotel where all the reviews are about the reception. With the hotel, the worst that happens is you have a miserable week’s holiday. When it comes to where to put your savings making a mistake could cost you your retirement.
So how do you ensure your savings are safe or the adviser you are dealing with is legitimate? Firstly, check the FCA register. However, in LC&F’s case, they were on the register – they just didn’t need permission to sell mini-bonds because mini-bonds are not regulated. This meant there is no compensation if things go wrong, so you also need to check that the permissions they have are relevant for the service you are buying. When asking for recommendations ask friends or family, not strangers on the internet and in particular ask them why they’d recommend them – the fact the firm took money off them efficiently should not be a reason to trust them!