DBS

31 multiple investment applications in order to take that extra diversification step that allows for three-way diversification across platforms, sectors and products. This range of platforms has also created a range of underlying assets as there is varying focus across the sites and many of these are assets which have traditionally only been available to institutional investors, rather than for direct investments, because of the higher level of funding required. Moreover, the small minimum investment amounts available means that it’s possible not only for smaller private and retail investors to access these previously unavailable sectors, but to diversify effectively. The biggest target sectors are Socially Responsible investments, and Property with over a quarter of the market each. The Socially Responsible category is dominated by renewable energy offerings and many of the Property offerings provide tangible security in the form of land or building assets. Meanwhile, Generalist platforms, that are non-specific about the sectors which back their DBS investments, make up just under a fifth of market share. This allows a very broad range of different industries whose performance may have correlating or non-correlating relationships. Within the Other category, there is a small number of platforms focused on areas such as asset leasing and student education, but perhaps the most notable of these is P2P loans where the funds generated by the bond are used to purchase a variety of different P2P loans. The interest payable by the bond is then derived from the combined interest from the P2P loans. This is an interesting way to access P2P loans via the stricter regulatory regime of DBS. The breakdown of underlying businesses that those platforms raise funds for is shown in the graph above. NEW IFISA PROVIDES TAX EFFICIENT WRAPPER Platforms are very excited at the introduction of the IFISA. It allows DBS investors to protect their returns from CGT and income tax and invest up to £20,000 in 2017/18 (across all ISA accounts), with no limit on transfers. DBS platforms have already reported a substantial boost to investment in their offers, increases in average investment amounts and transfers from cash and stocks and shares ISAs. The mainstream nature of the ISA brand has also proved to be a method to attract mainstream investors to DBS. Bearing in mind 12.7 million adult ISA accounts were opened in the 2015/16 tax year with £80 billion of assets deposited, of which only £21 billion 61 was in investments and the remainder sitting in cash, there is huge scope for DBS investors to take advantage of the tax benefits. The recent introduction of additional flexibility to some types of ISAs, including the IFISA, also means that investors can take money out of an ISA at any point, and as long as they return it in the same tax year, it will not reduce the current year’s allowance. This applies to current and past years. For ISAs with current and previous tax year money, withdrawals are first treated as coming from the current tax year’s allowance. If an investor withdraws more than they put in this year that surplus is treated as being from previous years. When replacing that cash, money put back is first treated as replenishing previous years and, if all is replaced, then the current year. Again, this must all be replaced in the same year as it was taken out. This Flexible ISA allows funds to be accessed, if, for example, an IFISA provider has a gap in its pipeline of deals and investors want their money to work harder elsewhere, or they need it for temporary expenses. However, this flexibility is optional, so providers don’t have to offer it and some types of ISA cannot offer it. Consequently, advisers and investors should check with providers before opening an IFISA account. Investments need to meet the following criteria to be held within an IFISA: must be debt based securities which are transferable securities issued by a company or charity; must be arranged by a regulated crowdfunding platform; must not be part of a tax avoidance scheme; must not have been made available to the investor due to their employment status (or other similar status); must not be made by an investor who is connected to the issuer of the debenture; must not be connected with any other investment made by the investor outside the IFISA investment; must have been made on genuine commercial terms; and the crowdfunding platformmust treat the investor as its client, must undertake, on behalf of the investor, to make and receive payments in respect of the investment and must exercise rights under or in respect of the investment 62 . The stipulations that the DBS must be offered via a crowdfunding platform that is authorised by the FCA to engage with retail clients are strongly supported by the UK Crowdfunding Association which lobbied HMT and HMRC on this matter. So, IFISA held DBS combine tax benefits with the highest level of regulatory protection available to investment based crowdfunding products. But this combination is not available to crowdfunded equities which are not eligible to be held within the IFISA. SECTOR FOCUS OF UK DBS PLATFORMS SOURCE: CROWDSURFER & IP 26.9% SOCIALLY RESPONSIBLE 26.9% PROPERTY 19.2% GENERALIST 7.7% EMERGING MARKETS 19.2% OTHER