Risks and Commitments

General risks

  • The content of this website, like our service, does not constitute advice or a personal recommendation to invest. The information is exclusively provided so you can make your own investment decisions. If you are at all unsure an investment is right for you and your circumstances, please seek professional financial advice. 
  • Some products may only be suitable as medium or long-term investments.
  • Investment returns and any income from them are not guaranteed and subject to fluctuations. The value of your investments can go down as well as up, so you could get back less than you invest. 
  • If investing in individual shares listed on the stock market please note they can be delisted at any time, even without prior warning. Should this happen, it may not be easy – or even possible – to sell your shares. This could result in you losing the whole value of your investment.
  • Cancellation rights may not be available. The investments featured do not provide capital guarantees like a deposit account and are not always readily accessible.
  • Past performance is not a guide to the future.
  • Exchange rate fluctuations may affect the value of non-UK shares.
  • The value of any tax benefits depends on circumstances and tax rules are subject to change. If you are at all unsure of the tax implication of an investment, you should seek specialist tax advice. 
  • Some investments (e.g. some AIM stocks) are less readily realisable than others. As a result it may be difficult to deal in or obtain reliable information about their value.
  • Before transferring an ISA, pension or unit trust please ensure you understand how the transfer will be made. When transferring as stock (e.g. in specie transfers and re-registration) you may not be able to sell your holdings whilst the transfer is processed. When transferring as cash you will be out of the market for a period, so your investments will be unaffected by any market ups or downs. You should also check that you will not lose any valuable benefits or guarantees as a result of the transfer or incur excessive exit fees. 
  • Clubfinance does not produce the products it arranges, or manage the underlying investments.
  • In the event of any conflict between product literature and information provided by Clubfinance, the product literature shall prevail.

Additional risks

ISA transfers

All ISA transfers

  • There may be exit charges and other costs associated with the transfer (please refer to the documentation relating to your existing investment or contact your existing provider, and see the points below).
  • Under some circumstances an ISA can be cancelled, or in HM Revenue & Customs terms made ‘void’ if there has been a breach of the ISA regulations. An example would be if an investor has subscribed to more than one Stocks & Shares ISA in the same tax year. In this case, the second ISA would be made void.
  • If the ISA is made ‘void’ or if you have the right to cancel and decide to do so, there may be shortfall in the amount of initial subscription returned if your money has been invested. This may include some non-refundable charges. In the event that a transfer is cancelled, you could lose the ISA status of your investments.
  • Transfers should be made using the appropriate transfer forms from the product provider in order to preserve tax benefits. If withdrawals are paid to you from an existing ISA and the proceeds invested with a new ISA manager this will count against your ISA subscription allowance for the current year.
  • If a current year’s ISA subscription is transferred, then the total balance of the current year’s ISA subscription must be transferred to the receiving ISA.
  • If you are transferring a current year’s ISA subscription, you should cancel any regular payments being made into the old ISA (e.g. contacting your bank to cancel a standing order or direct debit instruction) to reduce the risk of breaching the ISA subscription limit for the current or future tax years.

ISA transfers excluding re-registration onto a fund supermarket

  • There will be initial charges and set up charges – please refer to the specific documentation relevant to the new products you have chosen.
  • Your original investments are sold and new investments are bought – this will frequently involve costs such as dealing charges, stamp duty (on share purchases), a dilution levy on single-priced funds in some cases, and any difference between the price at which investments are bought and sold – please refer to the specific documentation relevant to the products you have chosen / the investments that you are transferring.
  • There is the potential for loss of income or growth, following a rise in the markets, whilst the ISA transfer remains pending.

Cash ISA transfers to a Stocks & Shares ISA

  • There is usually no risk to your capital in a Cash ISA. In a Stocks & Shares ISA the value of investments and the income from them can fall as well as rise. For many types of investment, you may be placing your capital at risk, so you may not get back the amount originally invested and you may risk losing your entire investment.
  • Under the Financial Services Compensation Scheme Cash ISAs are deemed to be Deposits which have a maximum level of compensation of £75,000 per person per authorised Bank or Building Society. Stocks & Shares ISAs are treated as Investments, which have a maximum level of compensation of £50,000 per person per firm. Please note these compensation limits are subject to change.
  • There may be penalties or loss of interest on a Cash ISA if it is transferred. Please refer to the specific documentation relevant to the Cash ISA that you are transferring.
  • It may take longer to make a withdrawal from a Stocks & Shares ISA than a Cash ISA.
  • If a current year’s Cash ISA subscription is transferred from a Cash ISA to a Stocks & Shares ISA, then the total balance, including any paid income, must be transferred. The subscription, excluding paid income, is counted against the Stocks & Shares ISA allowance for that year.

Pension transfers

Pension transfers are a complex area where advice is often needed. Clubfinance cannot provide you with this advice. If you are at all unsure you should seek a personal recommendation from a professional adviser.

All pension transfers

  • There may be exit charges or a penalty, for example a Market Value Adjustment (“MVA”), and other costs associated with the transfer from your existing provider (please refer to the documentation relating to your existing investment or contact your existing provider, and see points below).
  • You may lose benefits within the existing scheme, such as guaranteed annuity rates, guarantees on the amount you will receive, guarantees on the future level of increases that will be applied to your pension, the right to receive a terminal bonus on with-profit pension plans, or other valuable benefits.
  • You should consider carefully all the costs under both the old and new schemes including, but not limited to: initial, ongoing, and switching charges. The new scheme may be more expensive than an alternative product or a stakeholder pension.
  • You should consider carefully the features and options offered by the old and new schemes in relation to your needs. The benefits you eventually receive from the new scheme may be less than the benefits you would have received from the old scheme.
  • You should consider the range of funds/investments offered by the old and new schemes, and the need for ongoing review of investments within the scheme.
  • You should consider the risk profile of the investment choices available under the old and new schemes, and ensure that the new scheme can match your attitude to risk.
  • You should ensure the new scheme can meet your personal needs, objectives and circumstances.
  • You should ensure you understand the Lifetime Allowance rules for pensions and if you have applied for and been granted protection, that you understand any impact of the pension transfer on this protection.
  • You should ensure you understand the Annual Allowance rules for pensions.
  • Pension rules and tax treatments depend on your individual circumstances and may be subject to change in future.

Pension transfers excluding re-registration onto a fund supermarket

  • There will be initial charges and setup charges – please refer to the specific documentation relevant to the new product(s) you have chosen.
  • Your original investments are sold and new investments are bought – this will frequently involve costs such as dealing charges, stamp duty (on share purchases), a dilution levy on single-priced funds in some cases, and any difference between the price at which investments are bought and sold – please refer to the specific documentation relevant to the products and funds you have chosen / the investments that you are transferring.
  • There is the potential for loss of income, or growth (e.g. following a rise in the markets), whilst the pension transfer remains pending.

Investment Trusts 

Investment Trusts can be higher risk investments and should be considered medium or long-term investments. 

Underlying investments

  • Individual Investment Trusts may use, or be able to use gearing (borrowing money to invest) or derivatives. This strategy may result in: Investment Trust’s share prices being more volatile than the price of underlying investments; the investment being subject to sudden and large falls in value; and you getting back nothing at all if there is a sufficiently large fall in value in the investment.
  • Different Investment Trusts have different investment strategies, including the underlying spread of their investments, the types of investments they make, and the markets in which they invest, so some Investment Trusts are riskier than others.
  • A particular Investment Trust may invest in companies that are not listed on a stock exchange (unlisted investments). These can be more volatile in price (due to both valuation and performance), and are harder to sell than listed shares.

Taxation

Please refer to the individual Investment Trust documentation for a taxation summary and the taxation consequences for investors generally. However, please be warned that:

  • Taxation levels, bases and treatments depend on your individual circumstances and can change in future.
  • Changes in tax or other legislation may adversely affect the value of a Investment Trust.

Charges & performance fees

  • Initial charges and other upfront and ongoing costs, fees and charges will reduce the value of your investment. These may include performance fees.
  • Some costs borne by an Investment Trust will be fixed in nature. These fixed costs may have a greater impact on the performance of a small Investment Trust compared to a large one.

Security of capital

  • As with any asset-backed investment, the value of an Investment Trust depends on the performance of the underlying assets, so you may get back less than you originally invested.
  • The value of an investment in an Investment Trust’s shares and the income from it can fall as well as rise as a result of market and/or currency fluctuations.
  • Investment Trust investments may be subject to sudden and large falls in value, you could get back nothing at all.

Selling your investment

  • You may be able to buy and then subsequently sell shares in an Investment Trust through an Investment Trust savings scheme. Alternatively, following issue, Investment Trust shares can be bought and sold like other listed shares. However, in some cases, this secondary market may be limited, making the Investment Trust shares hard to sell.
  • Shares in an Investment Trust may trade at a discount (below the value) of the underlying assets held by the Investment Trust, and there may also be a big difference between the buying and selling price for the shares.

Structured Products

The risks of and features associated with Structured Products vary widely between individual products depending on the level of complexity. Structured products are often complicated. You should seek professional advice if you are in any doubt about the potential risks and returns involved. You could lose some or all of the money you put in to these products, so make sure you understand the risks before investing. Make sure that you read carefully, understand and retain the product documentation. 

Some of the risks are set out below.

  • The returns from investing in Structured Products may be based on the performance of share prices (excluding any dividends received from the underlying shares). If you owned the underlying share(s) you would normally receive the dividends. Structured Products do not pay or receive dividends.
  • Structured Product returns are usually based on a pre-determined formula relating to the performance of one or more broad stock market indices. Indices are also a measure of share price performance.
  • Although it may be possible to sell a Structured Product holding, you may need to commit your money for the full life of the Structured Product. Fees and charges are normally taken up-front which may further reduce what you get back if you decided to sell your holding prior to the issue’s maturity date.
  • With some Structured Products, you risk losing a proportion or all of your initial investment. For some products, this risk may be mitigated against a drop in the share prices or index to a certain level (for example 50%). This is often referred to as ‘soft’ protection. However, if the prices fall below that of that specified by the ‘soft’ protection, the protection may be cancelled meaning that investors will lose money.
  • Some Structured Products have an upper limit on the maximum possible return. A significant increase in the level of share prices or the index may mean that the return achieved is not as high as it may have been if you had invested in the underlying shares or an investment which tracks the relevant index.
  • Some Structured Products are designed with the aim of generating income. The initial investment or the income may be at risk if the underlying share price or index performs badly.
  • You can lose some or all of your money if the counterparty to the depository note is unable to meet its financial obligations or goes bust. In most circumstances, you will be unable to make a claim for any loss to the Financial Services Compensation Scheme, as most are listed securities which do not qualify for this additional protection.
  • Please note that the most common method of assessing the financial strength of issuing banks is by reference to the opinion of a credit rating agency (for example, Moody’s, Fitch Ratings, Standard and Poors) but this may not be reliable when used in isolation.
  • Different capital-at-risk products carry a wide range of different risk profiles and the risk of losing capital will in general be higher than for capital-secure products such as cash deposits.
  • You may be exposed to a range of outcomes in respect of the return of initial capital invested;
  • Before buying, you should check that you understand the way the product is priced, the charges involved, the length of time your money will be tied up and the consequences of cashing in the product early.
  • The investment may not be readily realisable.
  • Structured products often include derivatives as underlying investments. Derivatives can be subject to volatile price movements, including sudden and large falls in value, and they can become worthless.
  • Even if a product offers ‘capital protection’ it can sometimes fail, causing you to lose some or all of your original money.
  • Structured products should form only a part of a balanced investment portfolio.
  • You should consider spreading your investment between several products which rely on different financial institutions.
  • You should always know which financial institution is ultimately responsible for offering any ‘capital protection’, and if it is not clear then you should seek professional advice.
  • A product may be designed and marketed by a ‘plan manager’, but the returns and guarantees are generally provided by a third party. If that third party goes bankrupt, or is unable to meet its obligations. You could lose some or all of your money, even if a product is called ‘protected’ or ‘guaranteed’ or offers some form of guarantee. You may not be covered by the FSCS if this happens
  • If the return of your original money depends on the performance of a stock market index or asset, then if the level of that index or asset falls during the term of the investment you may lose some or all of your original money. If this happens, you could lose your original money very quickly.
  • The benefits offered (such as capital protection) are usually only available if the product is held for the full term. It may be difficult or expensive to access your money before the end of the investment term.
  • Even if a product is linked to the performance of a stock market index, you will not receive any dividend income from the companies which make up that index.
  • Many products restrict or cap the level of the return you can receive, so if an index or asset price rises above the level of that cap, you do not receive additional returns.
  • The return offered by some products can depend on several measurements of index levels or asset prices during the life of the investment. While this can protect you from short-term falls in an index level or asset value, it may also prevent full exposure to any gains.
  • Many products only offer a proportion (for example 50%) of any gains made by the index or asset to which they are linked.
  • Even where a product is marketed as ‘100% capital protected’, the real value of the capital can suffer significant erosion by inflation over the term of the investment.
  • The tax treatment of structured products depends on their legal structure and on any tax wrapper in which the product is held.
  • The amount of initial capital repaid may be geared, which means that a small percentage fall in the related index may result in a larger reduction in the amount paid out to you. · Any maximum benefit advertised is only available after a set period, and the rate of income or growth advertised may depend on specified conditions being met.
  • Redeeming a product early may not be possible, or may result in redemption penalties and a poor return.
  • The initial capital invested may be placed into high risk investments, such as non-investment grade bonds.
  • You should not enter into the transaction unless you are prepared to lose some or all of the money you invest.
  • You should satisfy yourself that the product is suitable and appropriate for you, in the light of your circumstances and financial position, and if you are in any doubt you should seek professional advice.
  • Depending on the product, there may be other risks affecting the value, trading price, and realisation of the value of the product. 

For the specific risks associated with a particular Structured Product you should consider information about the product itself and the issuer. Further information will be available in each product prospectus.

VCTs, EIS, SEIS and IHT Portfolios

Details about VCTs, EIS, SEIS and IHT portfolios, together with their specific risks, can now be found on the Wealth Club website