DBS

41 There are many variables to take into account here and for us, it’s clear that inexperienced investors should seek independent financial advice. From a regulatory perspective, DBS, as non-readily realisable securities, are generally viewed as higher risk than more traditional investments and so investors must have a healthy risk appetite. However, as we have seen, the variety of options available in this market does mean that many different investment objectives can be met by purchasing a crowdfunded DBS; attractive yields offered by creditworthy companies can be sourced here and would work for more risk averse investors. Moreover, because of their transferability, asset-backed, crowdfunded debentures, loan notes or bonds with fixed coupons benefitting from access to an active secondary market may be attractive to some of those looking for a low risk income over and above the return on cash and conventional investments, depending on the strength of the security. These could also be beneficial for investors looking to diversify away from mainstream markets and preserve their capital, but earn a higher yield. Finally, while this process may seem quite onerous, once advisers and investors have developed a good relationship with a reliable platform which they trust, and which issues DBS on broadly similar terms each time, the research and due diligence process can be simplified. INVESTMENT PROCESS Very often in this market, a DBS simply promotes a fixed coupon and interested investors just apply to purchase a certain amount of money’s worth of the relevant bonds, debentures or loan notes. Nevertheless, some platforms also implement a bidding process, whereby there is some room for investors to influence the interest rate at which DBS they are interested in, may be available to them: UK Bond Network holds bond auctions which feature a pre-auction period to allow investors the chance to look at the documents pertaining to the investment. The auction then opens for a maximum of two weeks, enabling investors to bid the amount they wish to invest (minimum £5,000) at the minimum rate at which they would be willing to lend the company money. Bids are prioritised firstly by interest rate, and then by time. Upon closing, the final interest rate for the crowdfunded DBS is set at that of the highest successful bid in the auction 82 . Abundance has a different bidding process in their secondary market – the investor chooses the amount of debentures they want to buy and offers a price for that amount. The bid is passed to the current owner of the debentures along with the investor’s email address and the two parties can then discuss the offer. Once the parties have agreed, the seller notifies the platform so that they can transfer the debentures to the buyer and, if required, move money from the buyer’s Abundance account to the seller. It’s a sensible measure to select bonds, loan notes or debentures so that they mature at regular intervals, perhaps a month or a year apart, with the intention that capital is returned at regular intervals. “Due to their structure, DBS allow advisers to get steady, uncorrelated, low volatility cashflows into client portfolios – potentially in a tax wrapper.” – Jake Wombwell-Povey, Goji Resources that can provide assistance on assessing debt based securities offerings include: in:review provides a live comparison of alternative investment platforms, expected to become fully live in 2017 with seven main aspects discussed: Liquidity. Early repayment, redemption, cancellation, transfer Regulatory Compliance. High level controls, CASS, AML, capital adequacy, client reporting, promotional material and complaints procedure Taxation. Only really relevant in the context of SIPP or SSAS Parties. Operator, issuer, counterparties – provenance, experience and regulatory record Security attached to debt based securities (how and when it can be enforced, operator’s process to assess potential borrowers, default, late payment analysis) Business Continuity and disaster recovery plan (triggers, costings, timings) Loans Analysis. Returns and fees in :review.com allstreet.org Allstreet provides short reports on crowdfunding investments with deal information, market analysis and their assessment. DBS RESOURCES