P2P Guide

39 38 TITLE OF SECTION P2P IN ACTION: ADVISER CASE STUDIES P2P in action: ADVISER CASE STUDIES Case Study: Max Spurgeon is a financial adviser and director at Legal and Medical Investments, a financial advisory business focused on doctors and dentists. The firm provides whole of market advice and, as such, it is currently not required to advise on P2P agreements. But it does. Max’s explanation is simple: “clients at the moment are facing inflationary headwinds, returns on deposits are relatively low and also many of our clients already have fairly high exposure to equities. So, P2P really filled a void for us. It has low correlation to equities and clients don’t have to commit to the sort of timeframes that you do with equity. They can invest for shorter terms and volatility can be very low.” Many of Legal and Medical’s clients have pensions, have used ISAs, and may have structured product investments, so, P2P is a great complement to that mix as a diversifier. It’s particularly useful as many of Max’s clients still have quite high cash reserves, including company owners looking for a better return. That doesn’t mean there aren’t risks. The P2P loans Legal and Medical uses are asset backed residential loans and any fall in the housing market could lead to the failure of those loans. With no financial services compensation scheme cover, Max feels that, however low the chance is of something happening, these investments are at least in the medium risk category. Legal and Medical prefers asset backed P2P investments, even if they may not offer the highest returns. The company likes platforms with some pedigree, like Octopus Choice which has been carrying on its lending trade for approaching ten years and has lent over £2.5 billion with a very low default rate. “You have to go and do your due diligence”, says Max, “and we took a lot of confidence from their track record”. Max says, “The entry levels are very low. I put my own money in first to get a feel for it. With time, I introduced clients I felt it was appropriate for, and some of them have put in relatively small amounts just to see how it feels. As they’ve got more confident with it they’ve topped up as they’ve seen fit.” Of course, explaining in detail the liquidity of the investment and how that impacts their access is vital. He feels that the level of work that advisers need to do to carry out the necessary due diligence and gain confidence in P2P could put some of them off. But, “for us, particularly in 2017 when the equity markets were very, very strong, to have P2P as an option, was really very helpful.” It can also be used in varying circumstances; there may be times when clients have a much higher percentage than 10% of their portfolio in P2P loans; perhaps they want their money in two years, are happy to accept some risk but don’t want to go into equities. They want a slightly higher return for a shorter period of time. Max views P2P as just another tool that can be used to get the right results for his clients, provided, as with any investment, they fully understand the risk profile. Max Spurgeon Director, Legal and Medical Investments