How Freedom Bay Was Made to Look Good to the Wrong Kind of Investor
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An investment on a luxury island that promises large returns as well as the opportunity to spend time in the resort – sounds great doesn’t it? This is what many people were told when trying to decide where to invest their SIPP (Self-Invested Personal Pension). The product they were offered was called Freedom Bay.
However, things quickly went bad with Freedom Bay, and many people lost their money. How did so many people get into this problem and how did it all go so wrong?
What Were SIPP Investors Told?
When SIPPs were introduced, many people were attracted by the possibility of getting higher rates of return by choosing where to place their pension investment. Many were offered the Freedom Bay resort.
Freedom Bay was a property investment product on the beautiful Caribbean island of St Lucia. The resort in Freedom Bay was to include villas on the beach, a spa, and more, with all of it built to five-star standard. It was billed as an "eco-luxury" resort. The developer was Malgretoute Hotel Development Company Ltd, with investors offered a very attractive package.
Specifically, investors were told they would own part of the resort. This included a timeshare element where investors would be able to use an apartment or villa for a period each year. This was promoted as “fractional ownership” but was structured almost identically to a timeshare offering.
Investors were also told they would get six percent interest on their investment during the construction phase. In other words, they didn’t even have to wait until the properties could be let out before their investment would start making a return.
Finally, investors were told they could get a refund with interest if the property they were investing in was not complete within two years of signing up to the scheme.
What Went Wrong?
Put simply, the resort is still not finished. The original target completion date was in 2012, although this then drifted to 2013 and then 2014. The current completion date is unknown.
In addition, most investors were not able to get the refund they were promised.
What Is the “Wrong Kind of Investor” for Freedom Bay?
The Financial Conduct Authority is the regulatory body that oversees SIPPs, including how they are sold and the conduct of the advisors making recommendations.
The FCA considers investors as being in one of two broad categories:
- Experienced investors
- Retail investors
Experienced investors have considerable experience making high-risk investments, including carrying out comprehensive due diligence on the scheme and the risks involved. In addition, experienced investors are typically high net worth individuals. This is crucially important as high net worth individuals will have the capacity for loss. In other words, if the investment goes wrong, the investor will not lose most of their net worth – or all of it.
There are only a small number of people in the UK who fall into the above category. Everyone else is a retail investor. Under UK regulations, UK investors should only be offered investments that are regulated and that are low to medium risk.
Freedom Bay was neither, so should not have been promoted or sold to retail investors.
