Let’s call time on the 8%pa anchor (the lure of the mini-bond)

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8’s – not a magic number

Mini-bonds –  who needs them – who loves them? Why do they exist?

They exist to line the pockets of people who find easy money in our yearning for 8% interest on our money. Where does this desire come from? It comes from the days when UK Government bonds carried a yield of 5%. Today yields are less than 1% but people are still “anchored” in their way of thinking , they still think that with a bit of ingenuity, a return of 8 or 9% is achievable – and what is more dangerous, they feel entitled to it.

So when someone without a moral compass comes along and tells them that they can invest in a bond that yields 8 or 9% , which can sit in an ISA , they want to believe. Which makes convincing people it can be done an awful lot easier.

The collapse of London Capital & Finance (LC&F), in January this year, was one of the grislier events in financial services during 2019.

The Tunbridge Wells-based firm had issued unregulated “mini-bonds” worth £237m to 11,600 investors lured in by the promise of 8% interest rates. Those investors are likely to have lost most of their money.

8’s – not a magic number.

LC&F – An existential threat to your career at the FCA?

This time last year, Andrew Bailey, the big boss at the FCA was being lined up to be the next Governor of the Bank of England, he’s still second favourite behind Minouche Shafiq (at 14/5) but LC&F happening on his watch – did him no favours.

This might explain why the FCA are being unusually pro-active in banning the promotion of similar mini-bonds in the first-quarter ISA selling season.

I am being tad harsh on the FCA here as their hands are tied (to an extent) by what they call their “regulatory perimetre”. They cannot regulate what sits within the mini-bond and call out the kind of chicanery going on at LC&F which invested in no-hope companies like London Oil & Gas which was leaking money back to the people running LC&F.  That relationship is now the subject of a fraud inquiry.

The FCA can regulate the financial promotions used to get ordinary people to see speculative investments as the equivalent of that building society account we held in the “good old days.

Which is what the FCA should do and are doing. Why I remain sceptical that the FCA has turned a corner, is that there are still too many financial promotions that pop on our devices , that tell us financial impossibilities.



It’s the way you sell’em

Were I to issue a mini-bond backed by AgeWage, my own company  you would rightly point to the real chance that AgeWage will not be around in thee years, there being no secondary market for the shares and for our company only having recently received its first trading revenue. But I could point to my company having a market cap of just under £4m.

You would be right on all accounts, though the claims of many min-bonds are based on the same speculation that gets crowd-funders to invest through platforms like Seedrs and Crowdcube in businesses like mine.

The difference is about promotion, as Frank almost says


“it’s the way you sell’em”

The problem is with us – not them!

There have been successful mini-bonds , launched by organisations like John Lewis and a number of sports clubs.

If people invest for as a supporter, as a charitable giver or even to support the aims of an organisation such as John Lewis, mini-bonds can attract the kind of crowd-sourced capital that does good things. I’ve written on this blog about the social value of Zopa for the same reason

If you look carefully at this promotion fo LC&F, it is positioned against Zopa.


But while Zopa explains the nature of its business and the risks attached to that 4%, L&CF never did.

Instead it used that magic anchor of 8% to make plausible it’s financial impossibility

If we are ever to rid ourselves of the menace of  8% promises, we are going to have to get people to think long and hard about why they still cling to the 8% dream.

We have to get people thinking about that simple but difficult idea of the “real return”, the return on our money that beats cash. Cash returns right now are not giving real returns, nor was 8% if interest rates were at 10% and inflation higher than that.

The world has moved on, but many of us are still anchored in a world of 8% returns. It’s nostalgic, unrealistic and very dangerous.

What the FCA need to be doing , as part of their duties, is promoting financial realism, helping people to understand that a risk-free return of 8% is a financial impossibility and that achieving a return of 1 or 2% in today’s climate, is not failure.

The problem is with us – without our behavioural bias’ , the crooks cannot win.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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