Some are predicting that the arrival of the IFISA could see around 500,000 new investors enter the sector for the first time.
Not that peer to peer lending has not been doing well before the IFISA was conceived. For example, one peer-to-peer platform has facilitated nearly £45m worth of borrowing across more than 75 loans.
But the IFISA may well encourage any adviser who’s considering handing back their new permissions to think again.
Separate the wheat from the chaff
In our minds, there is no doubt whatsoever that P2P lending represents an untapped opportunity for those advisers looking to add value to their clients, and indeed to their own books. At the end of this piece, there are case studies from two financial advisers who are doing exactly that.
Meanwhile, for advisers who have not yet dipped their toes into P2P, the key, as ever, is to help their clients separate the wheat from the chaff.
Given the sheer diversity of P2P lenders out there, below are eight questions that we believe advisers should be asking on behalf of their clients in order to cut through the noise and add real value:
1. Who’s the provider?
Are they a familiar face in the financial services sector? How well capitalised are they, and what sort of systems and controls do they have in place?
If it exists, be sure to consult any third party due diligence into the provider, to help you better assess how robust they are.
2. Do they have skin in the game?
Some P2P products include a ‘provision fund’ – a pot of money that can be used in the event of default as a sort of insurance policy. How big is it, and what level of cover does it provide?
But more importantly, what does the product provider suffer if a loan goes bad? At Octopus, for example, we invest 5 per cent in every loan – which would be lost first in the unlikely event that anything was to go wrong. It aligns our interests directly with investors.
3. Are the loans secured?
Is your client lending in the mere hope that they will get their money back, or is there a tangible security that can be called upon if a borrower were to default?
Unsecured lending is worlds apart from secured lending – we think the latter is less risky because if the worst case scenario were to happen, the underlying asset can be sold and the lender has the opportunity to get most or all of their money back.
4. Who are the borrowers?
