Independent financial advisers (IFAs) could unlock an enormous new investor base for peer-to-peer platforms, yet historically they have been reluctant to recommend P2P investments to their clients.
However, during a panel discussion at the P2P Investing Summit, a virtual event hosted by Peer2Peer Finance News and AngelNews, IFAs and P2P experts laid out a list of the requirements that P2P platforms should meet before IFAs allocate more funds to the sector.
- Explain the risk factor
Gary Jefferies, managing director of Panoramic Wealth, said that his financial planning firm has discussed P2P with clients but he is concerned that they don’t have a good enough understanding of how the risk works.
“Often they will come to us with something they found in the ether offering higher returns,” he said. “And often they ask us if they’re suitable for them before they go out and get it.
“What attracts them is the high interest and if they want to go down that route they have to understand the risk. That’s the more important part of it, because I think they can become fixated on the promised returns.”
- Target IFAs from the outset
Sam Handfield-Jones, former head of the wound-down Octopus Choice platform, and co-chief executive of Seccl, said that it is vital to deliver a P2P product that works for advisers.
“I think you need to start from scratch really and start with an adviser friendly product,” he said. “We had a huge amount of clients who would chat to an adviser and end up coming directly to the platform.”
By the time Octopus Choice closed in February 2021, it had 400 IFAs writing client business on the platform.
“That’s because we started with a platform which was designed for advisers,” said Handfield-Jones.
- Better protection for IFAs
Lawrie Chandler, director at Edale, said that the issue of liquidity and the risks to an adviser can create “as great a downside as the upside for clients.”
He added that if something does go wrong with a client’s P2P investment, the consequences could be great to them. As a result, he said that P2P investments are considered a “satellite element” of the financial landscape at the moment.
- Standardisation of data
The panellists agreed that there were standardisation issues in the P2P market.
“You can look at stock market returns over time and get a sense of the trends,” said Chandler. “You cant do that with P2P.”
Jeffries added that IFAs want more information in terms of what returns and defaults can be projected.
- A longer track record
The first P2P lending platform – Zopa – was launched in 2005, but for many platforms, the Covid-19 crisis was their first chance to prove that the business model could survive an economic downturn.
Handfield-Jones said that IFAs need “10, 20, 30 years of historic trends before they get comfortable with it.”
“My view is some things just take time,” he added. “You need to see other people walk along the plank before you do. You need some dips in the market and you need data to prove that the asset class can weather those dips and do what it was meant to do and return value to customers in the long term.
“That’s critical but some things just take more time.”
- Integration with IFA portals
Chandler, Jeffries and Handfield-Jones all agreed that it is vital for P2P services to integrate with traditional IFA portals if they want to attract more advised funds.
“They don’t have the API function to embed new products and services,” explained Handfield-Jones.
“My personal view is if you could structure a drawdown portfolio and you can put in different income generating asset classes to give yield in drawdown I think there would be a huge market demand for doing that, but frankly its bloody hard to do.
“You need an adviser portal to be able to drop fees in to your CRM system, you need to be able to take adviser fees if that’s what you’re doing, and you’ve got to think about the architecture of your platform from an adviser system.
“You have £500bn of client assets across the UK on the likes of Aviva, etc and that’s where the majority of investments are done. So unless your infrastructure is the same, you’re creating friction.”