8% ISA with London Capital and Finance PLC

Lungboy

I've just received a final update from the ASA:

"They have agreed to amend their ads to state prominently that some of the ISAs were not authorised by the Financial Conduct Authority and not protected by the Financial Services Compensation Scheme (FSCS). We consider that this will resolve the complaint without referring the matter to the ASA Council, and will consequently be closing our file."

jimjames

Thanks for the update. That's further than I got where they just closed it saying it was outside their remit

camelopardis

MK62 wrote: »

Be careful though if you run with an adblocker in your browser.....out of curiosity, I just did this and was quite surprised by what came back as the first entry....this site...:eek:...

Yep - I was confused at first until I remembered my adblocker - turned it off and could see what dunstonh was talking about. Just shows how useful adblockers are in cutting out most of the crud online.

Malthusian

Good result, but unlikely to make much difference as LCF outsources much of its advertising to third parties, who presumably aren't affected by this particular ASA case against LCF itself.

Such as the advert below from top-isa-rates.co.uk:


Note that the peculiar symbols underneath "Security" are displayed under every single alternative product on the page, including cash ISAs, which clearly implies that the LC&F ultra-high-risk unregulated bond has the same risk as an FSCS-protected regulated cash ISA.

Someone2088

I've come across LC & F recently while looking for new ways to save/ invest, as I'm struggling to find anything with a decent rate that I'm not already using.

The only investments I currently have are what I've done through a Lifetime ISA, although I remember reading about Finance ISAs on MSE a while ago... apparently I can't post a link because I'm new to these forums, but if you go to MSE, then search for "peer-to-peer lending", the first search result should give you the article I'm referencing.

I registered on the LC & F website, just to explore how their ISA product works (advertised as 8% over 3 years, with interest paid quarterly), and started filling out the application for this product. I did not finish the application at this point, or give any bank account/ card details while registering, as I thought that this surely sounds too good to be true.

Shortly after registering, I had a phone call from someone at LC & F asking if they could assist me with my application, or if I had any queries about the product.

I said I had a few questions about how it worked, the security of any money I invested with them, etc.

The guy went on to explain that they way the product works is that they take the money you deposit in your account with them, and loan it out to various companies, but your money is spread across a wide range of companies & industries, so that you never have more than a couple of pounds (or some other very small amount- can't remember exactly how much he said now) invested in any one company at a time.

He said that LC & F as a company are regulated by the FCA, and are registered with Companies House (which I've just looked up- their company number is 08140312 if anyone else wants to look it up). According to Companies House, they have full accounts made up to 30/04/2017- which seems pretty legitimate.

He said that although my deposit would not be covered by the FSCS, that LC & F themselves have a very strong asset backed security scheme in place. Apparently, to date (28/08/2018) they have loaned out over £197m and currently hold a legal charge over £300m+ worth of assets (property/ land, etc), and have so far had £55.8m+ of loans repaid in full and on time.

With regard to the risk, he said: "You should be aware, that as with any investment opportunity there is inevitably an element of risk. With our business model, if a large percentage of the companies that we lend to default on their loans simultaneously, coupled with their assets depreciating considerably over a very short period. This would create a return cash flow issue which may impact repayments to investors."

So, to my mind, it sounds like there is a risk, in that your investments aren't backed by the FSCS, they do seem to have an adequate alternative to the FSCS in place to protect your investments... the main risk being if a large number of the companies that they lend to default simultaneously... but the fact that your money is invested over a wide spread of companies & industries does seem to minimise this risk somewhat...

I haven't decided whether or not to go for this yet, as I'm very new to investment... and I'm aware that most of the comments on this forum are saying to stay well away from this, as it seems too good to be true, but I'm just wondering if anyone else can confirm what I've researched above, and whether or not this would be deemed 'fairly safe', as the likely 'bad debt' from investments should, in theory, be more than covered by the 'good debt'...?

jimjames

Someone2088 wrote: »

as it seems too good to be true, but I'm just wondering if anyone else can confirm what I've researched above, and whether or not this would be deemed 'fairly safe', as the likely 'bad debt' from investments should, in theory, be more than covered by the 'good debt'...?

I certainly wouldn't categorise it as fairly safe. As well as the risk on loans you're also reliant on it being run prudently for your benefit and relying on the information given being accurate. If you believe what you're being told over the phone then that's your choice. I wouldn't take that as necessarily being valid - with a sceptic note IO might think "they would say that wouldn't they."

londoninvestor

LC&F must be making some profit. So if they're paying you 8%, the companies they lend to must be paying them more than 8%. Let's say 10% for the sake of a round number.

Presumably if those companies could borrow elsewhere at less than 10%, they would.

If a company can't find anyone to lend it money at less than 10%, either (a) a lot of lenders are misjudging the company or (b) its risk of default is pretty material.

masonic

londoninvestor wrote: »

LC&F must be making some profit. So if they're paying you 8%, the companies they lend to must be paying them more than 8%. Let's say 10% for the sake of a round number.

I can't comment on LC&F specifically because they are far from a preferred option for this sort of investing so I've not had any reason to look into them, but typically the provider will retain around a third of the interest charged on each underlying loan as well as enjoying arrangement fees of a few percent.

So it's likely borrowers are being charged at least 12%, possibly as much as 18%.

I strongly suspect a potential investor who asks probing questions about this aspect of the product will find LC&F is suddenly unable to get back to them.

Someone2088 wrote: »

He said that although my deposit would not be covered by the FSCS, that LC & F themselves have a very strong asset backed security scheme in place. Apparently, to date (28/08/2018) they have loaned out over £197m and currently hold a legal charge over £300m+ worth of assets (property/ land, etc), and have so far had £55.8m+ of loans repaid in full and on time.

Assets will be valued based on normal market conditions, but based on real world experiences of defaults from P2P lending, fire sale prices actually achieved for assets can be as low as 30% of the original valuation, whereas loans are typically above 60% LTV.

verybigchris

Someone2088 wrote: »

I've come across LC & F recently while looking for new ways to save/ invest, as I'm struggling to find anything with a decent rate that I'm not already using.

You're not the only one. Their investments are being actively mis-marketed at savers looking for better rates (by third-parties, not necessarily by LC&F themselves).

Someone2088 wrote: »

I registered on the LC & F website, just to explore how their ISA product works (advertised as 8% over 3 years, with interest paid quarterly), and started filling out the application for this product. I did not finish the application at this point, or give any bank account/ card details while registering, as I thought that this surely sounds too good to be true.

Shortly after registering, I had a phone call from someone at LC & F asking if they could assist me with my application, or if I had any queries about the product.

I know some people see that as "good old-fashioned customer service", but I'd run a mile if a desperate salesman called me like that. I'd also make sure to tell them to delete all my personal data. But that's just my opinion.

Someone2088 wrote: »

The guy went on to explain that they way the product works is that they take the money you deposit in your account with them, and loan it out to various companies, but your money is spread across a wide range of companies & industries, so that you never have more than a couple of pounds (or some other very small amount- can't remember exactly how much he said now) invested in any one company at a time.

A tempting business model, but there are P2P companies offering IFISAs that do a much better job. With some of them you can scrutinise the loan book yourself: you can see who they lend to, what the individial rates are, whether they are up to date on payments, whether the security is all they claim it to be, whether the company is performing well, etc. With LC&F you just have to take their word for it.

Someone2088 wrote: »

According to Companies House, they have full accounts made up to 30/04/2017- which seems pretty legitimate.

Posting 16 month old accounts seems like a pretty low bar for legitimacy! If you actually read those accounts, you'll see in the strategic report that they only loan to 11 companies; if the salesman calls you back, please ask if that figure has increased, as it seems to clash with his claim that your money is "spread across a wide range of companies & industries".

Someone2088 wrote: »

He said that although my deposit would not be covered by the FSCS, that LC & F themselves have a very strong asset backed security scheme in place. Apparently, to date (28/08/2018) they have loaned out over £197m and currently hold a legal charge over £300m+ worth of assets (property/ land, etc), and have so far had £55.8m+ of loans repaid in full and on time.

Again, as you can't examine the loan book, you have to take their word for it. I've pulled out of a couple of P2P companies because I disagreed with both specific asset valuations and their general valuation policies, so it's not something I'd ever take someone's word on without hard evidence.

Someone2088 wrote: »

With regard to the risk, he said: "You should be aware, that as with any investment opportunity there is inevitably an element of risk. With our business model, if a large percentage of the companies that we lend to default on their loans simultaneously, coupled with their assets depreciating considerably over a very short period. This would create a return cash flow issue which may impact repayments to investors."

There's a risk that the underlying assets under control of LC&F falls below the level of liabilities owed to investors. Claiming it's just a cashflow risk is shocking.

Someone2088 wrote: »

they do seem to have an adequate alternative to the FSCS in place to protect your investments

Not even close to being an adequate alternative. This is an investment that should only be considered by people who are willing to bear the potential risk of losing capital. Anyone who is looking for an alternative to an FSCS protected product should walk away.

Someone2088 wrote: »

I haven't decided whether or not to go for this yet, as I'm very new to investment... and I'm aware that most of the comments on this forum are saying to stay well away from this, as it seems too good to be true, but I'm just wondering if anyone else can confirm what I've researched above, and whether or not this would be deemed 'fairly safe', as the likely 'bad debt' from investments should, in theory, be more than covered by the 'good debt'...?

It's great that you're here asking questions. You won't find a single successful investor who has ever said "I wish I asked fewer questions when I started out"! My personal opinion (for what little it's worth) is that LC&F probably isn't a scam, but for the risk profile there are far better options out there.

jonesMUFCforever

This IMO is not investing but a bet.