Are robo P2P services worth the extra money?
Investors opting to have their loans automatically allocated can earn up to double the returns using a robo-service, but will need to put more money at risk, research shows.
Platforms such as Zopa and RateSetter that automatically allocate loans, or those offering autobid functions such as Funding Circle, provide important ways to diversify and spread risk, but new services accessing a range of loans and providers on behalf of an investor are trying to compete.
However, investors will often find they need to pay a higher minimum investment, sometimes up to £5,000 compared with zero on some peer-to-peer lending platforms. There are also charges to have their funds managed.
This week, P2P investment manager Goji launched a Diversified P2P Lending Bond that lets financial advisers and wealth managers access a portfolio of more than 200 different loans from platforms assessed and chosen by the firm’s experts.
Investors have to pay a minimum investment of £1,000 and any further subscriptions must be in multiples of £1,000.
There is a fee of 0.95 per cent and the bond must be held until maturity, with products lasting one, three or five years. Interest is only paid at the end of the term.
The product can be held in an Innovative Finance ISA (IFISA).
Alternatively, another investment service called BondMason, targets a seven per cent return for a £1,000 minimum subscription and one per cent fee.
Unlike Goji, investors can access their funds within 28 days.
BondMason aims to have two-thirds to three-quarters of an investment in secured loans and limits its exposure to 25 per cent on a single platform. The provider currently avoids consumer loans.
As at the end of 2016, Bond Mason had live investments with almost 20 platforms.
BondMason is still awaiting IFISA approval but says once launched it will offer a product with a 6.5 per cent rate of return and minimum investment of £5,000, with the same one per cent fee.
These may sound like attractive rates for investors with the added bonus of having the diversification managed, but they will also have to weigh up the higher minimum investment and fees.
In comparison, investors may get more flexibility by going directly to a P2P platform.
Most P2P platforms have a secondary market where loans can be sold at any time and there are no fees for lenders, unlike Goji and BondMason.
For example, investors in consumer loans platform Zopa can expect 6.1 per cent returns on the Plus account, 2.9 per cent on its Access account and 3.7 per cent on the Classic account. The minimum investment is just £10.
RateSetter currently offers 3.2 per cent on its rolling market product, 3.2 per cent for one year and 4.1 per cent for five years. It has a minimum investment of £10 and a 1.4 per cent fee for those wanting to access their term products early.
Investors can also access rates similar to BondMason by using Funding Circle’s autobid service, where average rates are seven per cent, but can be higher.
The minimum investment on Funding Circle is £20 and there is a 0.25 per cent sale fee to exit a loan early.
However, unlike Goji or BondMason, the autobid service for Funding Circle still requires the investor to choose how much exposure they have to each business, so an element of decision making is still required.
Robo-services are already making headway in mainstream financial services and investors will always welcome moves to make the process more simple and less time consuming. However, the decision will ultimately come down to if they are willing to pay more to let a robot take control.
Read more: BondMason calls for end of provision funds