Let me declare my interest straight away – Intelligent Partnership is Abundance Generation’s distribution partner: we want financial advisers to include the corporate debentures that Abundance structure in their briefcase as one of their investment solutions for their clients.
But crowdfunding is gathering momentum (if you need to know more about crowdfunding, go here). NESTA estimates that £120 million was invested in this way in 2011 and £200 million in 2012. Platforms like Zopa, Funding Circle and Abundance Generation are on their way to becoming household names. And the feedback from users is positive – users report a much more positive and engaging experience than traditional investing. (I’ll declare another interest: I’m an investor via Funding Circle and Abundance and have been very happy with both the investments and the experience on both platforms).
Is this important for advisers? I think it might be. Adviser’s clients are going to come across crowdfunding as it grows and grabs more space in the media. And they are going to be tempted to invest and they may well invest independently of their adviser.
This is bad for the adviser, because it’s going to be business that they didn’t capture. But it’s also fraught with danger for the investor – nobody knows the dangers of DIY investing better than advisers do, because they come across clients who have done this and made mistakes all the time. Crowdfunding feels warm and cuddly, but that doesn’t mean you can just jump right in without any forethought. The opportunities out there have different levels of risk, different characteristics and different investment outcomes.
I’d suggest that advisers best policy might be to discuss crowdfunding with their clients before they come to it independently. Demonstrate that you are thinking ahead. Identify some options that fit in with their financial plan and investment objectives and discuss them with them. Warn them off the ones that aren’t a good fit. I think this pro-active approach would be appreciated by clients and help solidify client adviser relationships.
Final take-away: it’s probably going to be younger clients who are more interested in crowdfunding: people who have some spare cash to invest, perhaps for the very first time or perhaps it’s the first time that they can reasonably start to consider a little diversification away from mainstream assets. What a great opportunity to help and engage with your younger clients and hopefully build some loyalty that will pay off in years to come
Thanks
Dan