The Financial Conduct Authority’s (FCA) nerves around retail investors looking outside of mainstream products mean IFAs need to be extra careful when considering P2P or DBS for their clients. 

At Goji’s 2020 Platform Event in London, Financial Times columnist David Stevenson told delegates that there was a persistent core at the FCA who think investors should be pushed into mainstream funds.

Looking back at the past 12 months, it is not hard to find evidence of this view.

After some high-profile failures in the alt fi industry, the FCA came down hard on both P2P and non-listed corporate bonds last year

In the case of P2P, it created the ‘restricted investor’ class, limiting those who are not high net worth, sophisticated or under financial advice to investing just 10% of their assets into the sector, and requiring anyone looking to make an investment take an appropriateness test.

In some ways, this should provide IFAs with a rare window. For P2P platforms looking to attract more retail investors, IFAs suddenly became key to accessing larger sums. Yet in general, there has not been a cavalcade of P2P platforms looking to attract IFAs to work with them.

Instead, all has been relatively quiet on this front. When the rules came into force, two platforms stopped taking retail investments to focus on institutional investors entirely, but in general, IFAs and P2P platforms remain relatively distant from one another.

There are several problems at play. One is technological – in general the technology platforms P2P providers use do not sit well with the technology platforms IFAs use. Areas such as due diligence and risk are different in P2P compared to stocks and shares, and this means IFAs have to work much harder in order to offer it to clients.

At the same time there is undoubtedly an education element that needs to happen. P2P platforms and IFAs do not always recognise what the other side can provide for them.

Around the same time as the P2P rules went live, the FCA also announced a temporary ban on the marketing of minibonds to retail investors not considered sophisticated or high net worth. Unlike with P2P, there was an exception for advised investors.

This, again, followed several high profile failures, and was seen as a hammer blow by many in the industry. As it has only been in effect for just over a month, it is too early to tell what all of the consequences of it will be.


Hand in hand with this has been increasing nervousness from the FCA over the issue of liquidity. Alternative finance products generally have limited liquidity. Non listed corporate bonds are generally illiquid and, while some P2P platforms offer mechanisms to withdraw capital, this varies from platform to platform, and none can guarantee access. Lendy and London Capital & Finance – both of which collapsed early last year – still have investors who are waiting to hear how much of their money they will receive back.

The irony is that liquidity really only became a hot topic following Woodford’s dramatic fall from grace. Since then, numerous investors have come forth to explain how they didn’t understand the risks of investing and that, by using a well known ‘star picker’ brand, they thought they were investing in something almost guaranteed to provide returns. Of course, they were mistaken (unfortunately).

Therefore it is worth questioning whether it is fair to single out non mainstream financial products, given the Woodford debacle. In order to invest in P2P or DBS, investors have to jump through numerous hoops and, even then, they may not qualify to invest as they see fit. In contrast, currently anyone could open a Stocks and Shares ISA and buy a managed fund without taking financial advice or an appropriateness test.

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