DBS

3 Welcome to the first dedicated report to consider Debt Based Securities. Lending money has been around for millennia, and it is something that we have probably all done at one time or another with friends or family. But the much more formalised proposition of lending to businesses is something that, until quite recently, was controlled by banks and institutions, and not really on the radar of small individual investors. In the last decade, however, developments in alternative finance have seen major growth in investment offerings to individuals in the form of corporate debt, generally issued by small and medium sized enterprises looking to raise less than €5 million in a single issue. The investor buys the debt in the form of an unlisted bond, loan note or debenture at an agreed return – these are the debt based securities (DBS) we will be looking at in this report. At a time of stricter banking regulations, political drive towards opening up competition in the traditional finance sector, increasing confidence in internet based services and historically low interest rates, loan based investment transactions have seen a huge spike in interest. Brought to a wide audience by crowdfunding platforms, these offerings are providing a diverse source of investments with varying risk levels and returns, and exposure to various underlying business sectors without exposure to the volatility of the stock market. The crowdfunding phenomenon has certainly contributed to a democratisation of finance which is giving private individuals not only knowledge of, but access to the investments that they want to engage with – things they are interested in and feel passionately about or feel they understand. They can choose from asset backed opportunities with secure income streams, with bank beating rates and exciting, innovative projects with higher risk/higher return profiles. Whilst it’s understandable that advisers might have shied away from alternative investments with the continuing regulator scrutiny of due diligence and appropriateness, with the UK alternative finance market set to hit a cumulative loan origination value of £10 billion this year, these investments are fast becoming less alternative and more mainstream. Under a range of circumstances, there is a compelling case for the inclusion of debt based securities in a balanced portfolio. This has only been strengthened by their acceptance into the Innovative Finance ISA (IFISA) in 2016. Independent advisers are obligated to consider the “whole of market” before making a recommendation, and there are some important distinctions between the types of debt instruments that are available. As a result, it’s vital that they are not just aware of the debt based securities market, but also understand what it can offer, at what sort of fees, risks and returns. So, this report aims to give IFAs and paraplanners the confidence and knowledge they need to assess opportunities in this area and to allow their clients to take full advantage of the various offerings to access yield or diversify portfolios. GUY TOLHURST Managing Director Intelligent Partnership OPENING STATEMENT Editorial Lisa Best Creative Mar Alvarez Sub-editing Daniel Kiernan Lisa Best Ryan Zeng Mckay Blue Research Lisa Best Ryan Zeng Marketing Michelle Powell Print Palina Limited Copyright © Intelligent Partnership 2017