The UK’s alternative finance industry could be worth as much as £12.3bn a year by 2020 – but only if its members make a bigger effort in reaching out to advisers, according to a report from Intelligent Partnership.
The Richmond, London-based firm, which specialises in providing education and insights on alternative investments to advisers, wealth managers and financial services professionals, surveyed 130 financial advisers. Their responses form IP’s first report on alternative finance models such as crowdfunding and peer-to-peer (P2P) lending aimed at retail financial services professionals.
IP also surveyed alternative finance providers and reports that while 73% stated that they were either already marketing to financial advisers, or planned to do so in the future, relatively few of them were up-to-date on key industry developments.
Only 7% of advisers surveyed realised that alternative finance is now regulated by UK watchdog the Financial Conduct Authority (FCA), and only 13% were aware that some platforms used contingency funds to protect investors from losses. This is despite the fact that the UK government confirmed over the summer an April 2016 launch date for individual saving accounts (ISAs) for P2P loans, aka Innovative Finance ISAs.
According to John Goodall, founder of P2P lender Landbay: “P2P lending has become an innovative and accepted alternative to traditional savings and investment products. Very soon it will cease to be viewed as alternative finance, but instead viewed as mainstream.”
Responding to investor interest
However, IP suggests that a knowledge gap is acting as an obstacle. “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,” says Guy Tolhurst, IP’s managing director.
“So the alternative finance industry knows that they have to do much more to successfully reach out to the adviser community”
Colleague Daniel Kiernan, a director of IP adds: “In the P2P 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.”
Despite this, the survey found that 27% of alternative finance platforms have no plan in place to engage advisers, for whom investing in this market is not easy. “For advisers, investing their clients’ money in individual opportunities, would be time consuming and difficult from a compliance perspective,” says Kiernan.
“At our recent alternative investment summit IFAs who wanted to invest in alternative finance were advised by industry experts such as Louise Beaumont of GLI Finance to start by investing in one of the specialist retail investment funds that have launched, or by using the platforms’ in-built automation to make investments according to their specified criteria.”
Among the report’s other findings is that equity crowdfunding is regarded as a much riskier proposition, as it involves taking equity stakes in small or unproven companies.
However, comments IP: “this is a part of the alternative finance universe that is also maturing rapidly, with some platforms providing investors with opportunities to co-invest alongside experienced angels, access enterprise investment scheme and seed enterprise investment scheme [EIS/SEIS] tax reliefs, utilise the services of professional fund managers and provide capital alongside Alternative Investment market [AIM] listings.”
According to James Codling co-founder of equity investment platform Venture Founders: “In the near future, demand from sophisticated investors will see the need for a model that bridges the gap between the less sophisticated crowdfunding approach and the more professional and mature private equity [PE] and venture capital [VC] markets”.
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