MoneyWeek: FCA mini bond warning

For an ordinary retail client, my starting point with mini-bonds is very simple: no.

The word “bond” sounds reassuring, but some of these investments are anything but. You can be lending to one unregulated company, with little liquidity, limited diversification and the possibility of losing every penny if that business fails.

Could they ever have a place? Potentially, but only for a very small minority of sophisticated investors who fully understand the structure, can afford a total loss and are not relying on that money for their future.

The problem is that high fixed returns are incredibly seductive. Investors see 8%, 10% or 12% and compare it with cash. That is the wrong comparison. The return is high because the risk is high.

My rule is simple: if losing 100% of that investment would materially change your life, you should not be anywhere near it. No yield is worth destroying your financial plan.

The seductive thing about a mini bond isn't the yield. It's the quiet. Stock markets mark you down every day, and that noise is information. A loan note sits at 100p on your statement, pays its coupon on the dot, and tells you nothing at all, right up to the morning it is worth nothing. Investors mistake the absence of volatility for the absence of risk. The question isn't whether 9% is enough. It's why the offer reached you. Credit this good doesn't need retail money, banks price it for a living, and private credit funds fight over the scraps. When the capital is raised instead from savers through a commissioned introducer, every desk with a credit team has already looked and walked away. You are not early. You are last. Who should ever buy one? Someone lending to a business they know inside out, with money they can afford to write off completely. Even then the deal is lopsided. If the business fails you lose like a shareholder, if it thrives you still only get your interest.

Whether these ever belong in a portfolio, and what the rewards look like, is an FCA-authorised adviser's call, not an accountant's. The risk I can speak to starts with what you are able to find out before you lend. A private company gets nine months after its year end to file accounts, then a year before the next set is due, so the newest figures on the register can legally be nearly two years old. At the collapse behind this warning, the latest accounts ran to December 2024, and the next set was not due until two months after administrators went in. You can't assess a business on figures that old. If it fails, an unsecured loan note ranks behind insolvency costs, behind staff, behind HMRC for VAT and PAYE, and behind anyone holding a floating charge. A pot is set aside for those further down the queue, but only where a floating charge exists, and it is capped across all of them together, not one each. That pot isn't a safety net.