The key findings from Intelligent Partnership’s survey of the alternative finance space are in.
The report reveals an endemic lack of awareness about the alternative finance space within the advisory community. The headline findings reveal that 27% of alternative finance platforms have no plan in place for marketing to Independent Financial Advisers (IFAs). More worrying, however, is the fact that only 7% of the advisers surveyed realised that the many different moving parts of the alternative finance industry are now regulated, while a mere 13% were aware that some of the peer-to-peer lending platforms used provision funds as a means of guarding against investor losses.
With the advent of the Innovative Finance ISA less than 6 months away, there is a dire need to bring the advisory community up to speed. IFAs control vast swathes of ISA capital that could absolutely stand to benefit from the strong returns that have to date been delivered by the peer-to-peer lending sector (see, for reference, the Liberum AltFi Returns Index). But trust is critical, and will not materialise unless a greater level of understanding is first instilled within the IFA space. In the opinion of Intelligent Partnership, the onus is on the alternative finance space to do more to reach out to advisers.
The IP survey becomes all the more relevant due to the fact the FCA is at present actively considering whether its suitability rules for giving advice ought to apply to those that offer advice on investing via peer-to-peer platforms. If the regulator does indeed follow this course of action, advisers would be required to take “reasonable steps” to ensure that their personal recommendations are suitable for their clients. That might set alarm bells ringing for advisers, raising another potential barrier to adoption. An all-out offensive by the platforms will be required in order to get IFAs over the hump.
Guy Tolhurst, Managing Director of Intelligent Partnership, clarified:
"When we asked platforms what they thought the biggest barriers that prevent advisers from investing in the sector were, the vast majority said that it was a lack of education and awareness – so the alternative finance industry knows that they have to do much more to successfully reach out to the adviser community”
We also spoke to Daniel Kiernan at IP, who said that the core considerations for an IFA when considering a P2P allocation are the track record of a platform, meaningful performance data, and crucially the longevity of the platform. What happens if interest rates rise? Will the platform be fully authorised by the FCA? Is there a risk of the platform going under?
Kiernan also believes that those advisers that wish to dip their toes into the peer-to-peer waters will likely do so via one of the listed investment trusts, which are of course already eligible for ISA relief. One of the reasons is that direct-to-platform investment might well entail an extra level of due diligence, whereby advisers would need to assess both the quality of individual projects as well as the platform itself.
Kiernan summarised his thoughts:
“In the peer to peer lending sector, we know that retail investors are interested in the potential of truly uncorrelated, near-cash investments that will beat the returns they can get on bank deposits. Being able to hold these investments in an ISA will be the icing on the cake, and advisers will find more and more of their clients will be exploring this area.”
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.