Regulator warns investors to diversify and avoid excessive risk to protect their nest eggs

Charles Randell, chair of the Financial Conduct Authority (FCA) has warned consumers against ‘putting all their eggs in one high-risk basket, like a minibond or peer-to-peer lending platform’, and the risks to consumers’ investments and pension pots in an economic downturn writes Christian Leeming.

Speaking at the Gleneagles Pensions & Savings Symposium, Mr Randall’s comments come amid speculation that the regulator is under pressure to show it is regulating the alternative investments industry effectively:

‘The FCA needs to consider the support which consumers would need if a recession led to falls in the value of their investments, pressure to access pension savings for everyday living expenses and bigger gaps in new retirement saving, such as putting all their eggs in one high-risk basket, like a minibond or P2P lending platform,’ he said.

‘For most individual savers, spreading risk and keeping costs down are the right way to invest, and unlisted and illiquid investments like these should have little or no place in their savings plans. They are more likely to be badly affected in a recession.

‘And reducing costs will become even more important as people’s savings reduce.

‘So we must maintain our focus on ensuring that better value, well diversified investment products are available and signposted, both in the accumulation and decumulation phase of people’s retirement plans. And we must continue to work with government on ensuring that savers don’t invest money they can’t afford to lose in unlisted, illiquid and high-cost investments.’

Mr Randall emphasised that the City watchdog is taking enforcement very seriously; he said that the FCA is supervising investment advisers to ensure that they give suitable advice, and taking action against firms which promote unsuitable investments, particularly those which are unlisted, illiquid, risky and costly.

‘Be in no doubt that we will take enforcement action in cases of serious misconduct, and will work to ensure that bad actors don’t subsequently re-enter the regulated financial services industry,’ he added.

As well as the well documented furore surrounding FCA supervision, or otherwise, of the Woodford Equity Income Fund, it has also been heavily criticised following the high-profile collapses of P2P platform Lendy (more) and mini-bond provider London Capital & Finance (more) with calls for CEO Andrew Bailey to step down (more).

The FCA sent a ‘Dear CEO’ letter to a number of P2P platforms earlier this month,  setting out its view of the key risks to retail investors and urging them to ‘act now’ to clean up their practices.

See what Mr Bond thinks – London Capital & Finance, Mini-bonds, Regulation, Unregulated; it’s all a load of bonds