DBS

42 “The opportunity to earn tax-free returns on Crowd Bonds by investing through an Innovative Finance ISA is the game changer for the industry.” – Julia Groves, Downing RANGE OF MINIMUM INVESTMENT LEVELS MINIMUM INVESTMENT LEVELS The entry point in terms of funds in debt based securities is very much designed to accommodate retail investors: several platforms offer investments from £5 or £10. Others set their minimums at £100 or £250, although the more popular amounts are £500 and particularly £1,000. The highest minimum investment level we have seen in this market is set at £10,000. This shows that there is an opportunity for low value investing, although a significant proportion of platforms do limit investment to high net worth or sophisticated investors. This means that not every DBS offering is available to unadvised, inexperienced retail investors (even if they are limited to 10% of their net worth). TYPICAL FEES A significant proportion of the platforms do not charge a fee to investors (at least 40%). That’s obviously not to say that fees aren’t taken account of in the purchase price of the DBS; it simply means that what you see is what you get, i.e, if the rate is advertised at 7%, investors are due £70 interest per year on a £1,000 investment, with no upfront or annual deductions. That’s worth thinking about because, if the return for a particular debt based security appears to be lower than the level of risk seems to warrant, one thing to consider is whether significant fees have already been deducted. Other providers charge an upfront fee – Ethex is an example of this, charging investors 1.5% of their investment amount (minimum charge £15, maximum charge £300). Crowd2Fund fees to investors are 1% per annum on interest/capital payments. This might sound high, but if the returns on offer are slightly higher than comparable debt based securities which have no investor fees, the end financial result may be similar. It’s wise to check all fees that are payable – there may not be any upfront or ongoing fees, but Downing Crowd, for example, charges a monitoring fee, though it is contingent on investors getting their capital back and interest paid in full. Advisers should note that fees are generally lower on crowdfunded DBS than when investing through a fund, £12,000 £4,000 £8,000 £0 £10,000 £2,000 £6,000 SOURCE: MICAP Go through online application process. Transfer purchase funds (submit to money laundering checks of the website if required) to the platform/ trustee. Review DBS investment offerings – information on them should be available to allow advisers to commence due diligence on any they are interested in. If investing through an IFISA, investors must first open their ISA account and deposit funds before selecting a DBS. It will be necessary to register with a platform or open an account with them. Paperwork to evidence the investment (e.g. a certificate) will be issued to the investor (usually online and in pdf format). The investor’s money is invested by the DBS manager/issuer. KEY STAGES OF DEBT BASED SECURITIES INVESTMENT PROCESS Where the prospective investor is not advised, the platform will require them to take an appropriateness test to confirm their regulatory categorisation. Only retail clients classified as sophisticated or high net worth, who are corporate finance or venture capital contacts, or who will not invest more than 10% of their net investible assets in these products, can invest.