Advisers seek better regulation on P2P

Investment providers and advisers are calling out for better regulation and clarity on P2P, to reduce the friction when recommending to investors.

During an FTAdviser event on 23 January, P2P experts and financial advisers discussed some of the key topics surrounding this asset class.

Comparing apples with pears

What is clear is that that P2P is not a homogenous asset class, and even its name causes some headaches for the industry.

P2P loans can be in a variety of sectors from real estate to small business loans. Even within property, for example, the risk profile of a bridging loan compared with a buy-to-let strategy can vary significantly.

Claire Walsh, personal finance director at Schroders, felt that property P2P investments may leave clients overexposed to the real estate market, as the majority of clients would already have significant exposure to the property market via their primary residence.

With Mark Carney’s warning of a potential 35% dip in the UK property market, overexposure to this sector could be harmful.

Crying out for more regulation

There was a unified call for more regulation of P2P among advisers at the roundtable. In July 2018, the FCA released its consultation paper on loan-based and equity crowdfunding which called for more stringent controls over the sector.

Neil Faulkner, managing director at 4thWay said:

“Retail investors often don’t realise how long it will take to get their money back.”

Peter Marsland, business development manager at Octopus Investments, said:

“P2P is currently not covered by the FSCS, but we are lobbying hard for that to be the case in the future.”

The lack of FSCS protection could dissuade some advisers. FSCS protection would, of course, not protect against any underlying loan defaults, but it would protect against the failure of the platform.

Damien Webb, partner at RSM, added:

“A lot of platforms haven’t been tested yet, you have to understand what you’re lending against.”

Client-led demand

Demand for P2P products appears to be mainly mainly client-led. P2P has, of course, become somewhat of a buzzword, with clients asking advisers about P2P after seeing a tube advert, for example.

Emma Ann Hughes, editor at FTAdviser, noted that it is important for advisers to understand what clients were investing in, even if it is a product that they had not recommended.

Webb said that institutional investors who invest in P2P devote significant resources to due diligence. He suggested that advisers should follow in institutional investors’ footsteps when recommending P2P.

No “silver bullet”

Like any investment, diversification is paramount. David Stone, partner at Mansion House Capital, said that it’s important for advisers to spread the risk across multiple platform providers.

Marsland added that P2P “isn’t a silver bullet” and that investors should only allocate 5-10% of their investable wealth towards P2P.

However Webb disagreed, suggesting that in areas such as buy-to-let, investors could allocate a more significant portion of their wealth. Webb, however, felt that bridging finance and SME loans were “far too risky”.

Meet with Alt Fi providers

Meet a selection of Alternative Finance providers in one morning, including DowningOctopus InvestmentsTriple PointGoji, and RateSetter.

The events will go into detail on the investment objective of these providers, as well as details of the underlying investments, how they differentiate themselves, and the details of all their charges.

 

Our Alt Fi Showcase events are taking place at four locations across the UK:

  • London 5 February
  • Exeter 6 February
  • Bristol 12 February
  • Cheshire 13 February

Find out here how you can book your free place.

Comments are closed.