£236m savings firm collapse


(Jeff puckering) #1

Interested to know peoples thoughts on this, seems crazy that this sort of stuff still happens in this day and age. I can’t decide if the FCA should have been able to identify and stop this sooner or if transactions and operations of this magnitude are genuinely able to progress under the radar…

[London Capital & Finance: £236m firm collapses http://www.bbc.co.uk/news/uk-england-47454328]


Dozens App
(Simon) #2

That’s awful. Sub loans, links to the companies with loans. All seems very dodgy. That and the guys name from spurge Paul Careless :flushed:.


(Alex Suss) #3

Not a savings firm, it’s an investment firm. Capital is at risk. If you are getting 8% a year for 3 years and the risk-free rate is at 0.5%, you damn well know your capital is at risk and you are investing in something on the junk bond side.

The company does warn capital is at risk, but I guess their marketing made it out to be like it wasn’t.


(Luke Bebbington) #4

As bad as it is why do people still think their investments are guaranteed. And why put so much money with one platform.

It’s sad this stuff isn’t taught in school.

In saying that I hope the directors are properly charged. They effectively took advantage of people with misleading advertising.


#5

Not everyone has the good fortune to be sufficiently educated in investing or have the time to do so. It’s wrong to blame the victims


(Luke Bebbington) #6

Agreed, that’s why this stuff should to taught in school and there should be tougher sentences for those in charge.

However ‘Caveat emptor’ is just as relevant for finances as it is when buying a car.


#7

There was likely misconception that the investments were regulated by FCA when the firm was actually regulated for promoting the mini bonds. Very different but maybe key in confusing enough ppl thinking it’s safer bet that it actually was. There needs to be more transparency in the way firms disclose what they are regulated for. Just saying regulated by FCA can be misleading as imagine not a lot of ppl follow the link to FCA website to check what is actually being regulated. The consequence of misunderstanding this can be huge.


(PJ) #8

Could someone explain what happens to stocks purchased inside a platform should that platform fall from the sky?
Would the investors money still be invested in the stock?

Many thanks


#9

Freetrade explained how they keep your money safe in a blog post, it’s definitely worth a read

In summary your deposits are safe up to a £50,000 via FSCS scheme. The securities you invested in are held in a nominee structure so separate from Freetrade itself.


(Alex Suss) #10

You are protected up to £50,000 per stock account in case of fraud. If there is no fraud and a broker collapses, your money and stocks are safe, since it should be segregated. Stock records are kept by the government and your broker.

This limit rises to £85,000 in April 2019 per stock account. I’d advise not to keep more than £50,000 in a broker account, unless it is someone established like Hargreaves Lansdown etc.

The biggest risk is not collapse of a broker, since that is protected by the FSCS. It’s fraud on a massive scale, where records are not clean.


(Emma) #11

Why does being established offer more protection?


#12

Can teach money management in schools, but the landscape of available investment products is constantly changing, so…
That said the basic fundamentals of money management are pretty timeless.


(Alex Suss) #13

It doesn’t, it just means less chance of fraud. The £50,000 limit is quite low if you have been investing for 10 years +. The average Hargreaves Lansdown account is worth £75,000. There are individuals with accounts that are £250,000 + with Hargreaves, especially people who are retired living off state pension and dividend income.


(Alex Suss) #14

No school teaches anything on investing, it’s pretty sad if you think about it. All they say is save money (good in principle, but inflation kills you) and take out a pension (not really advised since you can get better returns managing your own money). Pensions I don’t like since the money is locked away, though employer matching is good.

I learnt investing from my masters, but more in particular from CNBC, Bloomberg and YouTube. Investing is hard to teach initially, because everyone will lose money. You have to know about accounting, market psychology, asset allocation etc. It takes years to master.


(Emma) #15

Im not seeing your point. All business is equally susceptible to fraud. Being more established might mean they’ve taken more time to design systems against it but no system is perfect


#16

My school taught us how to write cheques :rofl: That was this millenium :roll_eyes: Early losses, if you start very small with no more than you can afford to lose, can be seen as a cheap price to pay for tuition though. I think everyone needs to go through that learning process.


(Alex Suss) #17

Emma, there are many people who have more than £50,000 in an account. What do they do? Moving money to a different broker is not easy, also you pay much more in ISA fees for the same money.

All businesses are not equally susceptible to fraud, McDonalds is less likely to have an accounting scandal than some random FTSE AIM stock. Blue chips generally have better management. Hence why small cap stocks are riskier and demand a higher rate of return above the risk-free rate.


(Emma) #18

Only use a broker you trust.


(Alex Suss) #19

I don’t trust any of them to be perfectly honest, just some are less likely to collapse than others. Brokers make money from you overtrading, they are not in the game for your benefit. Wall Street runs on greed and fear, the more they make you feel these emotions, the more they will profit from you.


(Emma) #20

Collapse and fraud and 2 different things though. Chances of fraud are much smaller than a business failing.

I only use companies I trust which is why I bank with Monzo and invest with Freetrade. It’s more than a balance sheet, it’s ethics and transparency