Risk Warning

Last modified: August 20, 2023

Risk summary for non-mainstream and pooled investments

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers certain investments to be considerably complex and high-risk.

What are the key risks?

  1. You could lose all the money you invest
  • If the business offering these investments fails, there is a high risk that you will lose all your money. Unlisted early-stage companies, unlisted equity, unlisted debt, and investments in Unregulated Collective Investment Schemes (UCIS) can often fail as they can often use risky investment strategies.
  • Advertised rates of return are not guaranteed. This is not a savings account. If the issuer does not pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it may well be.
  • These investments are very occasionally held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax-free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.
  1. You are unlikely You are unlikely to be protected if something goes wrong
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here: https://www.financial-ombudsman.org.uk/consumers
  1. You are unlikely to get your money back quickly in certain investments
  • Certain types of businesses could face cash-flow problems that delay payments to investors. It could also fail altogether and be unable to repay any of the money owed to you.
  • You are unlikely to be able to cash in your investment early by selling your investments. In the rare circumstances where it is possible to sell your investment in a ‘secondary market,’ you may not find a buyer at the price you are willing to sell.
  • You may need to give an extensive notice period and have to pay exit fees or additional charges to take any money out of your investment early.
  1. This can be a complex investment
  • Certain kinds of investment have a complex structure based on other risky investments, which makes it difficult for the investor to know where their money is going.
  • This makes it difficult to predict how risky certain investments are, but it will most likely be high.
  • You may wish to get financial advice before deciding to invest.
  1. Do not put all your eggs in one basket
  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

For further information about unregulated collective investment schemes (UCIS), visit the FCA’s website here.