In a time such as this – with depressed savings rates and a great deal of uncertainty in the markets – one might imagine that peer-to-peer/marketplace lending would be seen as something of a silver bullet for financial advisors. Some of the leading platforms have managed to post consistently strong net returns across a period of five years or more. AltFi Data’s returns index, which is fuelled by granular loan level data from Zopa, Funding Circle, RateSetter and MarketInvoice, shows that the average net return of these four platforms has hovered between 4.5 and 6.5 per cent for the entire lifetime of the industry.
And yet the fact remains: financial advisors and peer-to-peer platforms simply do not get on.
That’s not to say that they haven’t tried to. Some platforms have gone to great lengths to get advisors over the hump. RateSetter, for example, has run a bespoke, IFA-friendly version of its platform since the summer of 2014. But even the RateSetter top brass would have to admit that they aren’t yet close to where they want to be in terms of cultivating relationships with financial advisors.
So what’s behind this disconnect?
“Having firstly identified the appropriate suitability for an investor, advisors, quite rightly, want to be prepared for when the regulator taps them on the shoulder should something not have gone to plan," said Tim Slesinger, founder and CEO of LendingWell. "They need to be able to say that they’ve looked at the market as a whole, and then to demonstrate how they’ve whittled down the options to the one or two or three players in the market that they have selected. Then they need to show that they have reviewed like-for-like research on those various opportunities. Then they need to be able to say why they chose the particular spread across those platforms.”
LendingWell is attempting to solve some of these problems by providing a more seamless mode of access for advisors who are interested in peer-to-peer. But it is by no means easy. The need for like-for-like comparison is a particularly complex problem to solve. Peer-to-peer lenders span a diverse range of asset types, and funding structures vary platform-to-platform.
Still, some remain optimistic that a solution can be reached.
“Advisors understand that verified data representing asset performance track record is essential to proving the suitability of any p2p investment,” said Rupert Taylor, CEO of AltFi Data. “Platforms and providers need to work to allow their track record to be appraised in a credible and easy to consume format which can only occur if data has been verified and can be presented to a consistent standard.”
AltFi Data is currently working to make its institution-facing analytics engine available to financial advisors in a more easily digestible format.
One platform that might stand a chance of breaking through the IFA barrier is the recently authorised Octopus Choice – Octopus Investments’ P2P offering. The platform has matched £45m of property loans since launching in April of last year, and already has a significant amount of advised money lent out. Parent company Octopus has over 6bn in assets, and has worked with thousands of financial advisors over the past 15 years or so.
Stuart Sheppard of Octopus think that the majority of peer-to-peer lenders simply lack the experience necessary for working with IFAs.
“The simple fact is that most P2P providers are unknowns to financial advisers,” he said. “They have little, if any, experience of engaging with intermediaries and, consequently, have little idea as to how they work, or the tools and resources they require.”
But Sheppard remains bullish on the prospects of a future union between platforms and advisors, if a suitable formula can be reached.
“I think it's fair to say that most P2P players haven't quite cottoned on to the level of support that advisors require – but for those who do, and who are able to provide it, the opportunity is massive,” he continued. “More and more advisors are looking to P2P as a helfpul addition to their investment armoury: a solid diversifier that can play a powerful role as part of a balanced portfolio.”
When tackling the question of how to better connect these two groups, Slesinger suggested that the onus is on the P2P market to better educate advisors and to ensure that there is good quality CPD accredited training available.
One big problem that we haven’t yet touched on is fees.
“Advisors, quite understandably, want to be paid for their advice,” said Slesinger. “However, to do this they have to show that they have added value and this can only be done if they can show that they have reviewed the market as a whole. Until recently, this has been a challenge.”
But Sheppard doesn’t quite agree, arguing instead that a single peer-to-peer product could be recommended and charged for, because that recommendation “will sit within the broader universe” of the financial advice that is provided to a client, and will be based on “thorough research”.
Cracking open untapped reserves of capital is the obsession of many within the peer-to-peer space globally, and financial advisors are regularly referenced as the number one target. And yet for a range of reasons, many of which are listed above, the two sides haven’t yet been able to mesh together.
Could the true dawn of the Innovative Finance ISA – which is likely to break this year – change that?
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.