A wealth manager has bucked the trend and backed peer-to-peer lending, after being responsible for a significant proportion of the £1m worth of money that has so far flowed onto Ratesetter’s adviser portal.
The P2P platform launched the portal in the summer of 2014, enabling IFAs to earn money through one of two ways - either by taking some of the interest clients earn through the platform, which is capped at 1 per cent across products - or by putting a pre-arranged fee on using the Ratesetter through them.
Recently, Ratesetter broke through £1m of assets via the portal, “a good deal” of which is from one adviser, according to a spokesman.
That adviser is Ian Hemingway, managing director at Ludlow Wealth Management, who told FTAdviser that he likes peer-to-peer as a satellite activity.
“Our clients continue to suffer low interest rates on their cash holdings. Besides what they need for now, they would be happy to tie money up for a limited period, especially as the present low rates don’t seem to be changing anytime soon.
“However, it is important to understand that not all peer-to-peer models are the same and can vary considerably on how they attract borrowers and support lenders.
“This is little different to what we need to do with regards to reviewing investment platforms and therefore with such an overhead it is likely that we will settle on a few players only.”
Many of his peers have cited the lack of Financial Services Compensation Scheme protection on P2P lending as a main reason to avoid it, but Mr Hemingway questioned what it would actually be to cover the failure of - the platform or the advice process.
“As far as the platform is concerned, you need to be confident on the sustainability of your chosen platform, ensure diversification of the client’s loan book and that a viable safety net is in place.
“If you go off these tenets, then you need to be happy that with the additional risks your clients will take on and are they being suitably recompensed.
“I am also certain that a number of commentators think peer-to-peer is akin to deposit taking at an individual level, it is not, you are taking direct credit risk on individuals; with a bank deposit you do not, exposure is directly to the bank not to their lending activities,” he continued, adding that this is why the FSCS can work for deposits and not for P2P.
Ceri Williams, senior commercial manager at Ratesetter, said he recognised that the industry needs to work to persuade advisers to embrace P2P lending, something he’s trying to do via the adviser portal and developing a product so it will become available via certain investment platforms next year.
“Happily, we’re starting to see the results, with IFA money making up a small but growing portion of our total lending, and we look forward to continuing to work closely with financial advisers to help them to understand our products and the benefits they offer.”
This time last year, the Financial Conduct Authority said it was carrying out a ‘post-implementation review’ of the new regulatory framework covering crowdfunding platforms, with P2P lending rules likely to be toughened to reflect an increasing risks to consumers.
By November, the regulator had launched a consultation on disclosure and advice relating to P2P agreements, as they are becoming permitted investments in Innovative Finance Isas from this April.
Earlier this month, the FCA stated that advisers will not be able to charge commission on P2P lending, with a discussion paper proposing to “add further guidance on the information firms should provide to consumers, which will apply when P2P agreements are to be held in an Innovative Finance Isa wrapper”.
Mr Hemingway said these developments were hard to ignore and suggested advisers need to have facilities in place to cover ongoing loan servicing, making the advice process regulated, keeping overheads to minimum and authorising platforms.
“Advisers need to be equipped to help navigate their clients through new propositions, even if some propositions never make it into the advice process.
“Our experience so far has been a good one and clients seem to understand the merit of having some small exposure as part meeting their overall goal,” he added.
