A new study from Intelligent Partnership (IP) finds that the alternative finance industry has to do more to educate financial advisers and that 27 per cent of alternative finance platforms have no plan to market to advisers.
Other findings revealed that only 7 per cent of advisers surveyed realised that alternative finance is now regulated by the FCA and only 13 per cent of advisers were aware of measures to reduce risk such as contingency funds.
Although 73 per cent of the alternative finance providers surveyed stated that they were either already marketing to financial advisers, or planned to do so in the future, the vast majority of advisers were still unaware of key industry developments, the survey found.
Guy Tolhurst, Managing Director of Intelligent Partnership says: "When we asked platforms what they thought the biggest barriers that prevent advisers from investing in the sector were, the vast majority said that it was a lack of education and awareness – so the alternative finance industry knows that they have to do much more to successfully reach out to the adviser community.”
With the new Innovative Finance ISA launching in April 2016, Alternative Finance is set to become increasingly popular among mainstream investors. According to the Future Trends in UK Banking, a report commissioned by Fiserv and compiled by the Centre for Economics and Business Research (Cebr), alternative finance could be worth GBP12.3 billion a year by 2020.
Daniel Kiernan says: “In the peer to peer lending sector, we know that retail investors are interested in the potential of truly uncorrelated, near-cash investments that will beat the returns they can get on bank deposits. Being able to hold these investments in an ISA will be the icing on the cake, and advisers will find more and more of their clients will be exploring this area.”
John Goodall of peer to peer lender Landbay adds: “Peer-to-peer lending has become an innovative and accepted alternative to traditional savings and investment products. Very soon it will cease to be viewed as alternative finance, but instead viewed as mainstream.”
However, despite advisers advising on an estimated GBP590 billion, over a quarter (27 per cent) of alternative finance platforms have no plan in place to engage advisers. Investing in this market is not easy for advisers. Kiernan continued: “For advisers, investing their clients’ money in individual opportunities, would be time consuming and difficult from a compliance perspective. At our recent alternative investment summit IFAs who wanted to invest in alternative finance were advised by industry experts such as Louise Beaumont of GLI Finance to start by investing in one of the specialist retail investment funds that have launched, or by using the platforms’ in-built automation to make investments according to their specified criteria.”
Geoff Miller from GLI Finance says: “For those who are new to the sector it can be an extremely confusing picture, but it is important to understand the issues that need to be considered and then either do your homework or find a fund that can do it for you.”
The survey found that equity crowdfunding is seen as a much more risky proposition as it involves taking equity stakes in small or unproven companies. But, the firm writes, this is a part of the alternative finance universe that is also maturing rapidly, with some platforms providing investors with opportunities to co-invest alongside experienced angels, access EIS and SEIS tax reliefs, utilise the services of professional fund managers and provide capital alongside AIM listings.
James Codling of VentureFounders says: “In the near future, demand from sophisticated investors will see the need for a model that bridges the gap between the less sophisticated crowdfunding approach and the more professional and mature Private Equity and Venture Capital markets”.
For advisers who have no knowledge of the alternative finance sector though, the message is simple. Tolhurst says: “Our surveys tell us that a lot of advisers don’t know much about alternative finance beyond the headlines in the mainstream press. Reading this CPD accredited report will be a quick and easy way to bring themselves up to speed. It will give them an understanding of the key issues and the differences between models like crowdfunding, peer to peer lending and invoice financing, even if they don’t feel ready to recommend clients invest.”
The full report can be found here .
