Don’t invest unless you’re prepared to lose all the money you invest. This is a high - risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more
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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.
What are the key risks?
You could lose all the money you invest
If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies.
Losses can exceed the invested amount. In some remote circumstances, you may lose up to double the amount invested due to adverse cost risk. After The Event (ATE) insurance will be put in place for cases that carry adverse cost risk, however it is not guaranteed that the insurance will pay out.
Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t 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 probably is.
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.
You are unlikely to be protected if something goes wrong
Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
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.
You are unlikely to get your money back quickly
This type of business 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 investment. 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 have to pay exit fees or additional charges to take any money out of your investment early.
This is a complex investment
This kind of investment has 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 the investment is, but it will most likely be high.
You may wish to get financial advice before deciding to invest.
Don’t 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.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here.
What are the risks of litigation funding?
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Investments in litigation funding carry with them several risks including illiquidity, lack of dividends, dilution and in extreme circumstances even loss of up to double the amount of capital invested. They should therefore only be undertaken as part of a well diversified portfolio. This type of investment is only for investors who understand these risks. Further information on the risks can be found in the Risk Warning as well as our blog post on the risks of litigation funding.
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