P2P Guide

41 40 THE PRACTICAL ROUTE TO P2P P2P IN ACTION: ADVISER CASE STUDIES Case Study: Gary Neild is managing director and chair of Blue Sky’s Investment Committee, as well as an experienced financial planner. Gary admits to being very wary about P2P before starting to recommend P2P loans to his clients. He was concerned with the sustainability, the risk profile, whether clients were protected under the Financial Services Compensation Scheme and the regulatory status. But, in his view, education and due diligence are essential for all advisers, before they start to recommend any offer; “If advisers can’t explain it to someone, they shouldn’t be doing it.” He says, “we have to do our due diligence to make sure we’re very confident in what we’re recommending.” That’s why he chose a well-established property backed loan service with first charge security. He doesn’t use P2P to chase stellar returns. Instead, he’s looking for predictable yield. Portfolio diversification, or making excess cash work a little harder are his main targets, bearing in mind the liquidity considerations. And, with a cash management service that researches bank accounts, Blue Sky is well- placed to judge how hard cash is working and how long it might be locked in to low- yielding accounts. Like Max, Gary’s view is that P2P is, “a complement to what you’ve already got and for us, it’s really about cash- beating, inflation-beating secured investing.” Gary continues, “Is risk leaving your money languishing in latent deposit accounts, guaranteed to lose money against inflation?” Blue Sky uses P2P as a risk management tool, under the right circumstances, with the right clients. They can be wealthy retired clients who like the steadiness of the returns or those with less money, trading some liquidity for better returns than cash, probably at a maximum of 10% of their portfolio. But, the firm only uses P2P that has strong asset backing. It’s clear that there is a lot going on for financial advisers at the moment, from MiFID II to PRIIPs, GDPR to SM&CR. And new asset classes can be threatening for advisers; they have to be mindful of their reputation, especially when the asset class has a reputation for high risk, even if that isn’t the whole story. But for Gary, the needs of clients come first and he thinks, “it’s remiss of an adviser not to consider it, particularly in this low interest rate environment.” Gary Neild Managing Director & Chair, Blue Sky Financial Planning The Personal Finance Society has stated that platforms have a greater focus on consumers than on advisers. This is part of the reason for retail investors engaging directly with P2P more quickly than advisers. But there are now adviser portals available, including those provided by Octopus Choice and Ratesetter. The OCTOPUS portal was designed specifically to assist IFAs in signing up and managing their clients’ investments on the P2P platformmore easily. Its adviser-friendly features include: • Client investments can be set up facilitating both upfront and ongoing charges paid out of client returns each month. • All client investment accounts can be viewed – allowing monitoring of their individual loan portfolios, rate, earnings to date. • Advisers can view all their aggregate earnings across all clients. • Advisers can determine how their clients take their interest – i.e. automatically reinvested or paid out as an income. The RATESETTER portal also notifies IFAs as their clients, funds mature and allows reinvestments to be set. It also facilitates the benchmarking of the advisers’ clients and gives some flexibility in terms of how the adviser takes their fees. Adviser Portals 8.1 The Practical Route to P2P 8.2 Tips to include P2P in adviser propositions Start slow With some very low minimum investment amounts, it is entirely possible to start slowly and to allow you and your investor to become comfortable with P2P investing before moving more funds into this solution. These low entry levels also allow for decent levels of diversification, often available more easily and quickly via automatic loan allocation. IFISA benefits extend to PSA IFISA prevents returns from P2P impacting on a client’s Personal Savings Allowance (PSA) as they are tax-free within the wrapper. Make themost of technology Some platforms allow for automatic reinvestment of returns into new loans and this can be a very good way to compound yields.