Small businesses warned about dangers of unregulated investments

Small business owners have been warned about the dangers of investing in unregulated investment products, following the collapse of a German property investment scheme that has left many exposed to losses.

Isme, the small business group, says in a communication to its members that it has received a number of reports of SME owners being approached to invest in unregulated products, with promises of large financial returns. Isme says it is aware of brokers being offered commissions of up to 21 per cent for the sale of some unregulated investment products. It says small business owners are "prime targets" as they often have no pension coverage.

Isme is advising its members to confirm, if they are approached to invest in a "non-standard product", whether that product offered is regulated by the Central Bank of Ireland and covered by the Investor Compensation Scheme. It also advises SME owners to confirm that the firm selling the product has professional indemnity cover for the product, and to take the advice of a qualified accountant or solicitor before signing up.

“Remember, if you invest your money in an unregulated investment product, you could lose some or all of it, and have no recourse afterwards,” it warns.

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Brokers

Some regulated brokers – or intermediaries – who are regulated by the Central Bank also provide unregulated products, and these do not carry the investor protections or oversight that apply to regulated products. Brokers are meant to inform clients so that they are aware of the regulatory status of the product they are buying.

The Isme letter refers to the collapse of a Germany property investment scheme run by a company called Dolphin Capital – later renamed the German Property Group – which has led to losses for investors across Europe. Irish investors are believed to have put more than €100 million into loan notes marketed by the company, attracted by returns that were to flow from the investment. However, many have now been told that their investment is effectively worthless.

Loan notes are unregulated financial products that involve investors lending to a company for a specified term, for which they are meant to receive an interest rate and finally the return of their capital. Many of the investors were advised to put their pensions into the Dolphin Capital loan notes and have incurred serious losses on their savings.