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Understanding the Innovative Finance ISA
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WELCOME TO OUR UNDERSTANDING THE INNOVATIVE FINANCE ISA SEMINAR REVIEW.

 

With the market for Individual Savings Accounts (ISAs) totalling nearly £600bn, most of which is held in cash, the introduction of the Innovative Finance ISA in April 2016 heralded a huge opportunity for fintech lenders in the nascent P2P lending industry. The IFISA is seeing increasing demand from wealth managers, financial advisors and their clients as both savings and investment strategies. Many P2P platforms are now able to offer A full IFISA product but the largest three firms - which accounted for 57 per cent of the market in 2016 -are still waiting for the regulator's approval. Where next for the IFISA?

 

The event brought wealth managers and IFAs as well as financial journalists up to speed with everything they need to know about the fast-growing alternative lending market, as well as a chance to meet the industry's key players and the understand the data that explains its most important trends.

Introduction to the IFISA 

David Stevenson, AltFi

  • David thinks that most investors hold their investments with overarching high-trust brands, and that moving funds into an IFISA offering is going to be a tough sell.
  • £13bn a year is allocated to stocks or shares on near money-market ISA investments. This is perhaps the best space for IFISA platforms to attack.
  • David reminded attendees that the SIPP industry is also wide open.

 

P2P Lending: The Importance of Data

Rupert Taylor, AltFi Data

  • P2P lending is just technology enabled finance, and online has now become the best location for matching the supply and demand of capital.
  • A big reason for this is that the internet allows borrowers to convey information about themselves more easily, thus allowing lenders to price risk more accurately.
  • There is a meaningful deployment opportunity in P2P – significant volumes.
  • The industry has delivered 10+ years of impressive net returns, but there’s no substitute for time.
  • Effective alignment between P2P platforms and their investors hinges on one key equation: investor suffering must equal originator suffering.

Why P2P Lending for Income Investors

Cris Heaton (Money Week), Andrew Lawson (Zopa), Brian Bartaby (Proplend), Martin Heelam (Assetz Capital), Ceri Williams (Ratesetter)

  • Andrew Lawson (Zopa): Provision funds were not set up to guard against losses, but to give investors diversification, and for Zopa to solve a tax problem.
  • Brian Bartaby (Proplend) emphasised income-generation as major strength of asset class, says it sits half way between cash and stocks/shares ISAs.
  • Ceri Williams (RateSetter) said that P2P and IFISAs can be used as a defensive mechanism in portfolios during times of volatility.
  • Martin Heelam (Assetz Capital) said that self selection investment accounts in P2P are best suited to enthusiasts, with auto-investment tools the better mass-market option.

The Innovative Finance ISA: Market Developments

Karteek Patel (Crowdstacker)

  • The IFISA allowed Crowdstacker to triple its lending volumes in a year.
  • Karteek echoed the sentiments of other speakers in positioning the IFISA between cash and stocks/shares ISAs.
  • 70 per cent of cash on Crowdstacker platform is IFISA money.
  • Those investors are mainly looking for: fixed income, investment choice and tax efficiency.

The Innovative Finance ISA for Financial Advisors and their Clients

Jake Wombwell-Povey (Goji), Bruce Davis (Abundance), Julia Groves (Downing), Sam Handfield-Jones (Octopus Choice), David Von Dadelszen (UK Bond Network).

  • Bruce Davis (Abundance) made the point that investors are effectively asked to understand the intricacies of a global investment bank when depositing funds in a cash ISA. He thinks P2P and renewables investments, which are eligible for the IFISA, are easier to understand.
  • Julia Groves (Downing Crowd) said that the IFISA was becoming a lot harder for advisors to ignore, and that it is now a £10bn market.
  • Sam Handfield-Jones (Octopus Choice) said a lot of platforms which offer the IFISA are hamstrung by not having tailored their offerings to suit the needs of financial advisors, but that Octopus Choice has.
  • David von Dadelszen (UK Bond Network) implied that platforms such as his – which specialise in bond listings – have a higher due diligence burden than other types of peer-to-peer lending platforms.

P2P Lending: Compliance and Regulation

Jonathan Rogers (Taylor Wessing)

  • Rogers says advisors will need to update their P2P suitability reporting about how they communicate to clients. 
  • This will need to be "bullet-proof for later down the track" he says. "There is quite a lot of work to done if advisors want to embrace this new asset class." 
  • Disclosure is a core focus for advisors owing to regulatory pressure from the Financial Conduct Authority as well as HMRC.