Helping advisers access products and services they historically have not found it easy to obtain is the driver behind the creation of Octopus Labs, its director Sam Handfield-Jones has said.
The Lab is one of six business arms that make up Octopus Group, a company that specialises in tax-efficient investing: venture capital trusts (VCTs), enterprise investment schemes (EIS) and inheritance tax (IHT) products.
The group’s other arms are focused on smaller company financing, renewable energy and healthcare.
About two-and-a-half to three years ago, Octopus set up in-house fintech innovation arm Octopus Labs to use technology to help advisers.
Mr Handfield-Jones said although Octopus has always worked with financial planners, it was not using technology as much as it could to help advisers, so Octopus Labs was set up to build “innovative” financial services products.
For us, P2P was a missed opportunity for financial advisers and we wanted to create a product that allowed them to provide advice and recommend these types of products to their customers.Sam Handfield-Jones“My role in that is looking after the direction of the labs and what areas we want to explore. A lot of what I do is spending time with financial advisers, talking about friction and pain points and trying to come up with solutions,” said Mr Handfield-Jones.
“At the same time, where products have become successful with advisers, we grow and develop those to make sure we retain a strong customer centricity.”
When the first offering was launched two years ago, it was named Octopus Choice. The move was in response to enquiries from advisers who wanted to find out how the peer-to-peer market (P2P) worked. Octopus Choice uses P2P technology to enable advisers to help their clients provide loans to individuals or companies, which have been secured against residential property.
Mr Handfield-Jones said the majority of P2P platforms were heavily focused on a direct-to-consumer model, with very few having an adviser portal. With Octopus Choice, Mr Handfield-Jones said the platform is designed to make it easier for advisers to pick the best loans for their customer.
He describes it as a discretionary portfolio constructed by Octopus, where all underwriting, checks and due diligence have already been done. The firm claims that Octopus Choice can help investors earn around 4 per cent a year by investing in carefully selected loans backed by bricks and mortar.
Mr Handfield-Jones said: “We looked at the space and decided none of the existing options were designed for financial advisers, so we went out and spent a lot of time with advisers, interviewing, testing ideas and working in partnership with them, to come up with a clear offering that appealed and worked with their needs.
“For us, P2P was a missed opportunity for financial advisers and we wanted to create a product that allowed them to provide advice and recommend these types of products to their customers.
“We have 20 years of working with advisers and it is really taking that combined corporate knowledge and applying it to a high growth area and making it suitable for advisers.”
Since entering the P2P sector, Mr Handfield-Jones said that nearly 1,000 advisers have registered on the platform, while almost £270m of loans have been funded by investors.
“We talk to advisers about how P2P fits into their portfolio structure and asset allocation process,” he added.
“What it offers is a low volatility yield in an environment where yield is hard to come by and volatility metrics are creeping up. It’s a better yield than cash and you are not exposed to the volatility of the stock market.”
According to Mr Handfield-Jones, the demand from investors for these types of loans has been driven by the rate pressure on Isas, challenges faced by property investors and a desire to help those who are in the decumulation phase of retirement.
Tax changes mean that stamp duty is quite punitive when buying a second property, and as a result, buy-to-let investors are not able to offset all the interest on a mortgage against the rental income.
Technology is totally changing business models and creating massive threats, but also massive opportunities.Sam Handfield-JonesHe added: “It is looking much less efficient. If the market grows at below 2 per cent, you can end up effectively with a 0 per cent rate of return.
“To get a diversified portfolio of property loans, backed by bricks and mortar, is quite an appealing notion for those who would have been a casual landlord but don’t want to deal with the hassle of it, and with the tax changes it become less financially viable.”
Another area that Mr Handfield-Jones said advisers are looking for help is with cash investments.
So it launched an offering called Octopus Cash designed to give clients a better rate on their savings, while making sure they are covered by the Financial Services Compensation Scheme (FSCS).
Octopus Investments works with a number of smaller banks who, it claims, offer some of the best savings rates around.
Looking ahead Mr Handfield-Jones said the Lab, which is now 100-strong, is continually looking at new products to develop as technology becomes a critical part of the financial services sector.
He added: “Technology is totally changing business models and creating massive threats, but also massive opportunities. Wealth management, financial advice, asset management; these industries are not immune from changes.”
Ima Jackson-Obot is a features writer at Financial Adviser
