The head of Octopus Investments has sought to alleviate concerns about the peer-to-peer sector after the firm unveiled its new online lending product.
Speaking to FTAdviser, Simon Rogerson, chief executive of Octopus Investments, said the firm designed Octopus Choice to address the scepticism and scarce uptake of P2P products among the advice community.
“It’s a new asset class and most of the firms in that market are not known to financial advisers and don’t have a proven track record, so we overcome that nervousness to some extent.”
He said the loans will come through the firm’s existing Dragonfly Property Finance business.
For advisers, concerns over the peer-to-peer industry revolve around credit underwriting systems, it not being covered by the compensation scheme and it not being tested during an economic downturn.
Octopus has worked closely with financial planners to develop the fresh offering, which invests in a discretionary managed portfolio of asset-backed loans.
Mr Rogerson said the peer-to-peer sector presents a “powerful opportunity” for financial advisers to add value to their clients, but is currently being overlooked.
The product launches on the back of the recent launch of the Innovative Finance Isa, which has helped push peer-to-peer lending into the mainstream market.
Customers will target higher interest rates than deposit accounts, but with less risk and volatility than stocks and shares.
Octopus has developed the product, which pays monthly interest, so that advisers looking to reduce exposure to equities can diversify their clients’ investment portfolios without compromising on returns.
The new Isa allows P2P lenders to put their investments in small businesses inside a tax-free wrapper.
Investments into Octopus Choice will initially be allocated to loans secured against residential property.
The investment manager will also invest in each loan on a ‘first loss’ basis to provide investors with an extra layer of protection.
Daniel Kiernan, research director at Intelligent Partnership, pointed to research on the alternative finance industry which indicated advisers have been wary of peer-to-peer lending, adding in fact many were “un-informed” about the sector.
He was confident that looks set to change with Octopus stepping in.
Richard Lord, managing director of Cardiff-based Bartholomew Hawkins said the new product from Octopus will provide advisers with additional choice beyond Isas and structured products.
“We’re really excited about what the product could mean for our clients.”
Tony Catt, compliance officer at Anthony Catt Limited, said: “This new fund is the first of its kind available in the UK and as such they should be applauded.
“On the face of it, this should provide decent returns with being subject to the stock market.
“Since the money is currently largely secured, then there would appear to be relatively low risk. However, as the fund accepts money to be put into peer to peer lending, the credit risk will ratchet up. Peer to peer lending has a record of remarkably low default rates up to now.