The weeks following the UK's European Union referendum looked bleak for investors. With the pound in freefall, stock markets in retreat and the Bank of England's monetary policy committee unveiling an interest rate cut, positive investment returns were in short supply.
Enter Hunter Jones, a London-based investment consultant, which dispatched a marketing email with the words 'Brexit special' in the subject line; anyone who opened it found brief details of a property investment scheme offering returns of 'up to 27.2 per cent' over the subsequent two years.
The scheme in question required investors to stump up at least £10,000 for loan notes offering exposure to projects being run by another company, Empire Property Holdings; the latter pledged to invest the money in developments where it was converting commercial property to residential use.
Crucially, however, this was an unregulated investment scheme. The small print reveals that neither Hunter Jones nor Empire Property Holdings are regulated by City watchdogs.
This is not to suggest either company has done anything wrong - though the Brexit link looks rather opportunistic - but it does mean potential investors need to tread carefully. They won't be protected by regulators, ombudsman or official compensation schemes.
In fact, the growth of unregulated investment schemes has accelerated in recent times.
During a period when returns on conventional investments have been disappointing, it's easy to see why schemes purporting to offer more exciting levels of income and growth - via property, or more exotic assets such as art, wine, forestry and even film production - might capture people's imagination, even if they're not sure what they're getting into.
Indeed, such has been the expansion of unregulated investment schemes that three years ago, concerned regulators launched a crackdown.
The Financial Conduct Authority's (FCA's) rules now ban the promotion of unregulated investments to the general public. They can usually only be 'proposed' - still not promoted - to investors who certify themselves as sophisticated or high-net-worth.
The inference is clear. Regulators do not believe unregulated investments are appropriate for the vast majority of people.
But does that mean everyone should steer clear of these investments? Not necessarily, argues Ben Yearsley, co-founder of Wealth Club, a financial adviser that specialises in working with high-net-worth individuals.
'There is nothing wrong with unregulated investments per se,' he says. 'For high-net-worth and sophisticated investors, they can add something different to a portfolio.'
It's a fair point. The fact that an investment is esoteric and unregulated doesn't necessarily mean it won't deliver good investment returns - indeed, some investors have made good money from, say, overseas property or film production.
If your portfolio is already stuffed full of conventional investments, why shouldn't you consider alternatives, even if they aren't regulated by the FCA? All the more so if your conventional portfolio isn't delivering the returns you'd hoped for.
There are, however, a number of potential pitfalls. Some unregulated investments turn out to be distinctly murky - for example, the Serious Fraud Office (SFO) is currently investigating two separate property schemes run by Stirling Mortimer and Harlequin Property, both of which were high-profile unregulated investments a few years back.
But legitimate unregulated investment schemes often have problems too: charges may be high, information on how they operate may be opaque, and it's often difficult to get your money back ahead of time. It's certainly tricky to scrutinise the claims they make about prospective performance potential.
Then there's the legal position. With no policing by the FCA, holding unregulated investment providers to account on any of these issues is far from straightforward.
And if something does go wrong, you won't be able to claim redress from the Financial Services Compensation Scheme, which covers those schemes with regulated providers - unless, that is, you can show you were mis-advised to invest by a financial adviser who is fully regulated but from whom redress is not available.
Given all these headaches, most investors would want to take independent financial advice before parting with their money. But doing so may be tougher than you'd expect. Many advisers are distinctly nervous about this whole area of unregulated opportunities, so it may be a struggle to get any advice at all.
That's an important point, says Jason Hollands, the managing director of wealth manager Tilney Bestinvest. 'I would make a distinction between advice and products,' he says.
'You should never get involved with an unregulated financial adviser, but there may be occasions when it might be appropriate for some investors to consider unregulated collective investment schemes - for purposes such as inheritance tax planning, for example.'
The question investors should ask themselves, suggests Philippa Gee, the managing director of Philippa Gee Wealth Management, is whether an unregulated investment really adds something to your portfolio that isn't available in the regulated world - and whether that something is valuable enough to forfeit the protections that regulation offers.
'I would suggest that in 99.5 per cent of cases, these products are not relevant for investors, given the risk, the often higher charges and the potential illiquidity,' she says. 'There is plenty of risk in mainstream markets - you don't have to consider unregulated ways to access volatility.'
WINNERS AND LOSERS
When unregulated investments go wrong, investors can suffer huge losses
Marketing company Arck took £47.5 million from investors between 2006 and 2011, supposedly for potentially lucrative building projects such as a golf resort in Cape Verde.
In reality, Richard Clay, the boss of Arck, was using the money to maintain a lavish lifestyle and to make speculative investments on the currency markets that subsequently failed.
The fraud was only uncovered when suspicious investors launched a civil action against the company in 2012 - Arck was subsequently investigated by the SFO and Clay was sentenced to more than 10 years in jail in October 2015. Investors, however, have received almost nothing back of their money.
Equally, however, unregulated investment schemes can and do produce positive returns for their investors.
At Hunter Jones, for example - the introducer that earlier this year was suggesting clients look at a property development scheme managed by Empire Property Holdings - a spokesman insists past performance has been impressive.
'That particular developer has over a decade of experience in delivering high margins and returned an average of 11 per cent a year for clients investing in its bond,' Hunter Jones said in a statement.
HOW TO PROTECT YOURSELF
Don't even consider investing in an unregulated scheme until you have conducted some very thorough checks.
You must be sure you understand the nature of the underlying investment and that you've been through the smallprint with a fine-tooth comb:
- Do you have a clear picture of what charges you'll pay?
- When will you be able to get your money out of the scheme?
- What fees or penalties might be payable if you make early withdrawals?
- Who runs the company and what is their track record?
- Are there any warnings about the business on the FCA's website - it keeps a register of scam companies and fraudsters.
- Is there any way to check investors' money is going into the assets that the provider claims?
If you have access to a professional independent financial adviser who is happy to look at the scheme on your behalf, so much the better.
This may even give you some protection via the Financial Services Ombudsman and the Financial Services Compensation Scheme if you are mis-advised.