How can the P2P sector win over advisers?
CONSUMER interest in peer-to-peer lending has never been higher but so far financial advisers have been reluctant to recommend it to their clients.
A recent survey by P2P research firm Orca found only 20 per cent of IFAs were currently advising on the solution.
According to The Personal Finance Society, part of the problem stems from the P2P providers themselves. Very few have established their brands with the advice space in mind, it argues.
Sam Handfield-Jones, head of Octopus Choice, said most brands are consumer-focused with advisers very much secondary to their proposition.
By contrast, Octopus Choice offers suitability reports, due diligence tools, an adviser portal and training. Handfield-Jones claimed that since its launch 18 months ago, over 550 advisers have been using the platform, equating to between 1,500 and 2,000 clients being advised on P2P every year.
“If a P2P platform is built in the right way with advisers in mind, they will use it,” he added.
Read more: Octopus Choice to launch IFA portal
Bruce Davis, co-founder and joint managing director of Abundance, said advisers don’t tend to recommend P2P lending because there isn’t a single adviser platform that enables them to invest across lots of providers at once.
The adviser has to go to each site and invest on behalf of their client, making it difficult to monitor and integrate investments.
Davis said an even bigger barrier exists in the debt-based security space because advisers are required to undertake specific training in order to advise on the investments. What’s more, they have to judge each individual asset on its merits, rather than investing across lots of products at once.
“If the adviser was going to do due diligence they would need to know that three or four clients were interested, otherwise it’s not worthwhile their time,” he added.
There is also a need for greater education and information – Orca’s survey found that of the IFAs who were not currently recommending P2P, three-quarters said they wanted more information.
David Bradley-Ward, chief executive of Ablrate, suggested that if there were an education drive, the industry could get to the point where specialist P2P advisory firms were being launched.
“P2P was created as a direct investment route but we are seeing some layering, from firms that do the due diligence and invest on your behalf to aggregators and funds. There is no reason why advice should not be a part of that,” he argued.
However, he admitted that it is more likely advisers will recommend a platform like RateSetter, which spreads money across lots of different loans, than one like Ablrate where they have to choose a specific investment.
“It is unlikely they would take that risk. If the loan defaults and the adviser had advised their client to invest in it, it would be very difficult for them to justify why,” he explained.
There is a perception among many advisers that P2P lending is too risky. Handfield-Jones said this stems from the fact that P2P lending is usually referred to as an asset class.
“P2P is not an asset class, but a regulated technological framework that allows us to facilitate investments into underlying asset classes,” he stated.
He suggested the industry could help to improve adviser understanding by focusing on the underlying investments – for example whether they are secured or unsecured.