FINANCIAL advisers are avoiding giving advice on peer-to-peer lending because they are worried it will not be covered by their professional indemnity insurance (PII).
Max Lehrain, chief operating officer at P2P property lender Relendex, said P2P investing is a “grey area” when it comes to PII.
Some independent financial advisers (IFAs) assume it is covered under the general advice section of their policy, whereas others do not think it is covered at all.
Read more: IFAs need to communicate better with clients
“P2P lending is a new area for IFAs so they lack understanding and are wary their PII won’t cover them if they get it wrong,” said Lehrain.
Brendan Llewellyn, co- founder and director of communications platform Adviser Home, suggested PI insurers will decide whether or not to cover P2P investments on a case-by-case basis.
If, for example, P2P lending comprises a very large proportion of an adviser’s business, it would probably be deemed unacceptable by the insurer and therefore not insured under the policy.
Russell Facer, managing director of threesixty, an adviser support services company, added that insurers are generally sceptical of P2P lending because there is a question mark around whether advisers add value in what is traditionally a direct lender-borrower relationship.
“The risks are unknown, so if the insurer does cover P2P lending they will probably add on a risk premium,” he said. “For advice to be cost-effective, the adviser would therefore need to be recommending P2P lending to high-net-worth individuals.”
A spokesperson for Markel International, a PI insurer, said: “There’s no reason why P2P investments shouldn’t be covered, unless they are speci cally excluded. While Markel currently writes IFA business our appetite for new exposures is limited.”
This article featured in the July edition of Peer2Peer Finance News, now available to read online.