A couple of Friday’s ago, while cooking dinner on the barbeque, I was flicking through Twitter on my phone. One tweet read that a liquidator had been appointed to Blackbee Investments in Cork. While I never used any of their products, I have a client who invested a considerable amount of money into one of their products before he started working with me. I had to phone this client on a Friday evening and tell him there is now a danger that he has lost all of his money. We just don’t know how this is going to play out.
Blackbee is just another in a long line of Irish investments that has gone bust. Solar 21, Dolphin Trust and numerous loan notes investments have seen investors lose their money in recent times. These investments are extremely high risk and most people don’t understand the risks they are being exposed to.
Some of the products issued by these companies are regulated by the Central Bank. Others aren’t. If the product is regulated, it means that it is under the scrutiny of the Central Bank, can only be sold to you by an authorised advisor and you are eligible to compensation under the Investor Compensation Company Limited (ICCL) scheme which all advisors and providers must pay into. Compensation under this scheme is 90% of the lost but capped at a paltry €20,000.
If a product is unregulated, anyone can sell it to you. The investment is not subject to any scrutiny and you have no protections. But this is where the lines get blurred somewhat.
While Blackbee Investments (regulated) has gone into liquidation, Blackbee Alternatives (unregulated) isn’t. If I Google “Blackbee Alternatives”, Blackbee Investments is the top result.
Websites can be very misleading to investors and it can be difficult to spot that a company is unregulated. Afterall, they don’t have to tell you they are unregulated, you have to find out for yourself.
One website I looked at for this article had “specialist investment advice”, “book a financial review”, “pensions”, “savings”, life assurance”. All the kind of things that you would expect on a financial advisors website. To me, it looks like any other financial advisors website.
But what they don’t have is “Regulated by the Central Bank of Ireland”. All authorised advisors have to have this on their headed paper and emails. But if you didn’t know this, you wouldn’t know and how many people read the blurb at the end of emails or at the bottom of headed paper.
Some have two two companies, one for regulated business and one for unregulated business and the flit between the two email addresses depending on whether they are talking about regulated or unregulated business. You have no chance.
From what I have seen, it is mainly the unsophisticated investor that is being targeted for these products. But are they being told of the real risks that they are being exposed to?
Let’s do a little comparison? The MSCI World Index consists of approximately 1,600 companies from around the developed world. The biggest weighting is in Apple, the biggest company in the world, which makes up 4.97% of the index. According to their accounts, Apple Sales International (the main vehicle of Apple’s sales), Apple generated revenue of $222.7 billion for the year ending September 2022, with a gross margin of $96.46 billion. The second biggest company in the MSCI World Index is Microsoft, which makes up 4.01% of the index. Microsoft’s revenue for the year ending March 2023 was $207.59 billion.
Compare that to investing in a nursing home in Galway. Their last published accounts are from 2019 and show zero under cash and cash equivalents and have net liabilities of €551,104.
Which do you think is higher risk? The one investing in 1,600 international companies with hundreds of billions of sales each year or the one investing in one small Irish business?
Inexperienced investors should not be allowed anywhere near these extremely high risk products. They are a sure way of losing your money and these investors rightly go away believing that the game is rigged.
Investors should always look for liquid assets where they can sell their holding whenever they want and not opaque, illiquid investments that can’t be sold on the open market.
And if you don’t fully understand the investment, don’t give them your money.
05 June 2023