In short, more than likely, yes.

We all know the old adage, if it looks too good to be true, then it probably is. However, sometimes, an opportunity comes along that is easy to get carried away with.

With a rise in financial scams being reported recently in the Financial Times and people looking for inventive ways to counteract the effects of the cost of living crisis, it seemed like an opportune moment to find out more about unregulated investments.

Our Independent Financial Adviser, Jenny Hall, DipPFS answers some key questions on things to consider.

What are unregulated investments?

Unregulated investments are any investments that are not regulated by the Financial Conduct Authority (FCA). In the UK, financial advice and financial markets are regulated by the FCA, who is committed to protecting consumers, enhancing market integrity, and promoting competition in the interests of consumers.

However, not all investments are regulated, which is a bit of a grey area. There is a spectrum of unregulated investments from unregulated collective, or ‘pooled’ investment schemes (UCIS) to unregulated advisers operating without authorisation from or registration with the FCA, through to complex financial scams.

They often promise high reward and returns in a shorter time period than regular, or more traditional, investment vehicles yet come with much higher risk and little protection.

What do unregulated investments look like?

They can be quite varied and that is the difficulty. Often unregulated investments look too good to be true, promising a guaranteed return or the ability to double your money in comparison to other regulated investments.

We see them across a number of sectors from property, forestry, land development and cryptocurrency, to name but a few.

Are they legal/legitimate?

Another grey area. The FCA says that all investment firms should be authorised, but some niche investments are unregulated and are not for the general public. Experienced investors can get involved in these and they are not illegal, but it is inappropriate for the vast majority of regular public investors. From MPA’s point of view, based on client welfare and the ability to have some form of comeback if something goes wrong, they are morally questionable.

Who offers unregulated investments?

Firms, schemes or advisers who are not covered by the FCA and scammers. You might be approached through cold calls, social media, emails or online ads promising high yields in short timeframes. Often seminars and exhibitions on self-made millionaires can encourage this type of high risk investing as a way to get rich quickly. The sales tactics are reliant on high pressure investment decisions, yet there is no protection when things go wrong, or you want to withdraw your investment.

What are the benefits of unregulated investments?

There is a potential for high level returns in a shorter time frame than normal e.g. international property or films. People who are looking for an attractive yield and increase in capital can benefit, particularly if it is in an area they know very well and have significant market knowledge.  Also, some people feel a sense of empowerment to go their own way and make their own decisions.

What are the pitfalls/things to be aware of? 

Unregulated investments offer:

What should you always check when investing?

In all financial investments, you should always be able to see that they are FCA regulated and part of the Financial Services Compensation Scheme or Pension Protection Fund as investments can be held in pensions or funds.

What if you have invested in an unregulated investment and it is now on the FCA warning list – how do you get your money out?

It all depends on the investment. You need to report it to the FCA and let your adviser know, as they may be able to help. If you have any concerns about a potential scam, then let the FCA know immediately.

Where can you go for more information?

It is so disheartening when people are taken advantage of and we would always encourage people to speak to their adviser before making any decisions. You can also:

Your adviser will not tell you what you can and cannot do, but they can make you aware of the options available, pros and cons, pitfalls and steer you down a safer route. If nothing else, they can give you a bit of breathing space to review the claims made if you have been given the hard sell.

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