Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.

2. 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.

3. You won’t get your money back quickly

• Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.

• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.

• If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.

4. 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.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

5. The value of your investment can be reduced

• The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.

• These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.

2. You are unlikely to be protected if something goes wrong

3. You won’t get your money back quickly

• Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.

• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.

• If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.

4. 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.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

5. The value of your investment can be reduced

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

Important: FCA changes from 1 February

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

You may not be aware of this.

From Wednesday 1 February, new rules are being brought in by the Financial Conduct Authority (FCA), our regulator, which affect investments in private companies, including EIS, SEIS and Inheritance Tax Portfolios (VCTs and AIM ISAs are excluded).

The new rules are intended to ensure only people who fully understand – and are comfortable with – the risks are given the opportunity to invest.

To comply with the new rules, we are making some changes. Below we provide a quick overview.

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice.

What is changing?

1. We’ll have to check who you are before you can see how to apply.

You will still be able to apply online for all the investment offers on our website. However, as you will notice, when you click on “Show me how to apply”, we will ask for an email address. This is just so we can check whether you have used our service before. For existing Wealth Club members, once you enter the email address we hold on record for you, you should go straight to the application form. If the email address cannot be matched, you will be treated as a first-time investor.

2. 24-hour cooling off period – only for first-time investors

When a first-time investor wishes to apply, 24 hours need to pass between expressing an interest and being able to apply. During this time, they will have an opportunity to review the risks and decide if they still want to go ahead.

3. The high net worth and sophisticated investor declarations are changing

This means from 1 February everyone will have to complete the new declarations before being able to apply for investments in private companies, including EIS, SEIS and Inheritance Tax Portfolios. The declaration will then be valid for 12 months.

4. We have to ask a few questions when you apply

These should be straightforward for any experienced investor: they are intended to assess your knowledge and experience. The questions are part of the application form for investments in private companies, including EIS, SEIS and Inheritance Tax portfolios (VCTs and AIM ISAs are excluded). You will need to answer these correctly before being able to complete your application.

5. We will not be able to offer discounts on EIS/SEIS investments and IHT portfolios

The FCA has banned any incentives to invest, including savings on the initial charges that could encourage someone to apply. Note as above, this does not affect VCTs or AIM ISAs.

Questions?

If you have any questions, or need any help with the new application process, please do not hesitate to contact us on 0117 929 0511 or by email.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

Free factsheet: VCTs at a glance

Free factsheet: EIS at a glance

Free factsheet: SEIS at a glance

Free report: How to make your ISA IHT free