Intelligent Partnership have found that the Alternative Finance industry needs to do much more to reach out to advisers.
Although 73% of the Alternative Finance providers IP surveyed stated that they were either already marketing to financial advisers, or planned to do so in the future, the vast majority of advisers were still unaware of key industry developments. Only 7% of advisers surveyed realised that Alternative Finance is now regulated by the FCA, and only 13% were aware that some platforms used contingency funds to protect investors from losses.
Guy Tolhurst, Managing Director of Intelligent Partnership commented: “When we asked platforms what they thought the biggest barriers that prevent advisers from investing in the sector were, the vast majority said that it was a lack of education and awareness – so the alternative finance industry knows that they have to do much more to successfully reach out to the adviser community”
With the new Innovative Finance ISA launching in April 2016, Alternative Finance is set to become increasingly popular among mainstream investors. According to the Future Trends in UK Banking, a report commissioned by Fiserv and compiled by the Centre for Economics and Business Research (Cebr), alternative finance could be worth £12.3 billion a year by 2020.
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Daniel Kiernan commented: “In the peer to peer lending sector, we know that retail investors are interested in the potential of truly uncorrelated, near-cash investments that will beat the returns they can get on bank deposits. Being able to hold these investments in an ISA will be the icing on the cake, and advisers will find more and more of their clients will be exploring this area.”
John Goodall of peer to peer lender Landbay added “Peer-to-peer lending has become an innovative and accepted alternative to traditional savings and investment products. Very soon it will cease to be viewed as alternative finance, but instead viewed as mainstream.”
However, despite advisers advising on an estimated £590 billion, over a quarter (27%) of alternative finance platforms have no plan in place to engage advisers. Investing in this market is not easy for advisers. Kiernan continued: “For advisers, investing their clients’ money in individual opportunities, would be time consuming and difficult from a compliance perspective. At our recent alternative investment summit IFAs who wanted to invest in alternative finance were advised by industry experts such as Louise Beaumont of GLI Finance to start by investing in one of the specialist retail investment funds that have launched, or by using the platforms’ in-built automation to make investments according to their specified criteria.”
Geoff Miller from GLI Finance stated that “For those who are new to the sector it can be an extremely confusing picture, but it is important to understand the issues that need to be considered and then either do your homework or find a fund that can do it for you.”
Equity crowdfunding is seen as a much more risky proposition as it involves taking equity stakes in small or unproven companies, but this is a part of the Alternative Finance universe that is also maturing rapidly, with some platforms providing investors with opportunities to co-invest alongside experienced angels, access EIS and SEIS tax reliefs, utilise the services of professional fund managers and provide capital alongside AIM listings. James Codling of Venture Founders: “In the near future, demand from sophisticated investors will see the need for a model that bridges the gap between the less sophisticated crowdfunding approach and the more professional and mature Private Equity and Venture Capital markets”.
For advisers who have no knowledge of the Alternative Finance sector though, the message is simple. Tolhurst again: “Our surveys tell us that a lot of advisers don’t know much about alternative finance beyond the headlines in the mainstream press. Reading this CPD accredited report will be a quick and easy way to bring themselves up to speed. It will give them an understanding of the key issues and the differences between models like crowdfunding, peer to peer lending and invoice financing, even if they don’t feel ready to recommend clients invest.”