Tag: Investments#

Majority of savers misunderstand benefits of IFISAs

Author
Angus Dent
Date

61% of UK savers acknowledge possibility of higher returns and better interest rates with Innovative Finance ISAs (“IFISA”), but majority still don’t understand the service

London, UK – 2 May 2018 – Over a third (36%) of UK savers would place their money in an IFISA if they had the money available. The question is, what does the industry need to do to gain the trust of the undecided two thirds?

While a large proportion acknowledge the prospect of higher returns (61%) alongside the allure of the tax-free wrapper and greater diversification, the IFISA is still a hard sell, according to research undertaken by P2P lending service ArchOver. In truth, the majority of UK savers (57%) still don’t fully understand the service. Unlike cash ISAs, money invested in an IFISA is not protected under the Financial Services Compensation Scheme. As such, savers need to be confident in the strength and stability of the underlying businesses they are investing in. They must seek out lending schemes that provide deep insight into borrowers as well as all robust processes and security.

IFISAs present a greater risk when compared to a standard cash ISA, but the potential reward is exponentially higher. ArchOver CEO Angus Dent explains, “IFISAs are fundamentally different to cash ISAs in the way they operate. Meeting investors’ expectations and making them feel secure at the same time will require ongoing education. Our research shows that nearly half (48%) of savers are nervous about losing their money, so the industry needs to communicate the benefits and safeguards clearly”.

“The IFISA gives you the freedom and flexibility to choose your own investment. Investors must use that power to choose an option which combines the best elements of P2P lending: thorough due diligence, rigorous lender security and favourable returns. They must do their research to gain insight into the companies they’re investing in and should not ignore the job of diversifying their portfolio to balance out their risk.”

Over a quarter (26%) of savers say they are reassured by regulatory oversight such as the Financial Conduct Authority’s (FCA) recent approval of a number of P2P providers, including ArchOver. Dent reassures concerned savers, saying that “although IFISAs have an associated risk like all investments, investors and savers can get a greater level comfort by choosing a P2P platform that carries out stringent due diligence and credit analysis of all potential borrowers”.

“Now is a crucial time for the sector to raise awareness around IFISAs and how they work. We must make sure that investors and savers have all the information they need when looking at IFISA options. Ultimately, we need to remember why P2P was created in the first place – to offer more choice and transparency when participating in project-by-project lending”, concludes Dent.

Telegraph Hub: Is your pension enough? Three ways to make the most out of your money

Author
Angus Dent
Date

ArchOver has teamed up with The Telegraph to produce a series of articles to help educate investors on the UK Peer-to-Peer Lending sector. In a brave new economic and financial world, understanding different ways of managing your money is key to success. P2P Lending can help both individuals and businesses navigate a post-Brexit world, with the reassurance that it is a secured and effective method of protecting and growing your money.

Getting a good return on your investments is more crucial than ever as you approach retirement.

With the base rate at record lows and living costs high, putting together a nest egg is difficult while you are working. What’s more, when working people begin to approach retirement, they are often encouraged to switch their investments into lower-risk assets, a process known as “lifestyling”.

This can further decrease the chance of a good pension pot because these lower-risk assets, such as government gilts, often provide very low returns.

Making it last

Once pensioners reach what is called the “decumulation phase” – when they retire and start to use their savings to live on – the problem continues.

Unless they buy an annuity, which gives a guaranteed lifetime income, pensioners must use their nest egg to meet their living costs for the rest of their lives. And annuities are by no means fail safe – rates have halved in the past 10 years and unless pensioners continue to invest and gain returns, their pension pot is likely to fall in value due to inflation.

With this in mind, investors must consider all the options to ensure their pension saving is adequate and that they make the most of their savings approaching retirement without taking undue risk.

1. The traditional route

A portfolio of shares and bonds or funds is a traditional option.

Returns on a share and bond portfolio will vary, and the value of your money can go up as well as down. Choosing shares that pay dividends can help to swell your nest egg over time. The latest Barclays Equity Gilt study shows that the average share investment would have returned 2.3pc per year after inflation in the past 10 years, with bonds returning 3pc.

pension-grow-basket

2. Buy-to-let

Buy-to-let property has been a popular option for pensioners wanting to make the most of their nest eggs. However, a raft of tax changes including higher stamp duty on second properties and a phasing out of buy-to-let tax relief makes this less attractive.

There are also costs associated with buy-to-let including budgeting for void periods. Rental yields can be high, with recent figures from Lendinvest showing that buy-to-let hotspots including Gloucester and Blackburn have yields at over 4pc.

3. Peer-to-peer lending

Peer-to-peer lending is another option, which may produce a higher return, but also puts your capital at risk. Peer-to-peer sites lend money to individuals or businesses and can offer rates of up to 7pc.

Different peer-to-peer sites offer different forms of security for your cash and different lending models, so it’s important to understand how the system works.

ArchOver, which specialises in business peer-to-peer lending, offers rates of between six and seven per cent, and lenders can tie up their money for as little as three months – although 12 months is more likely.

Angus Dent, chief executive at ArchOver, says he believes the product is suitable for pensioners who have done their homework and who could use peer-to-peer lending as part of a diversified portfolio. “Our oldest lender is in his 90s,” he says.

 

How ArchOver Works.

ArchOver matches lenders and borrowers so that lenders earn a competitive rate on their money and borrowers can get the money they need for their business to grow. As well as doing their own due diligence on the companies on their platform, loans made through ArchOver are “secured and insured”.

The security policy involves ArchOver, on behalf of its lenders, having the first right to the Accounts Receivable of each borrower, which they are required to keep at a level of 125 per cent of the loan. ArchOver’s charge over the Accounts Receivable is registered at Companies House. A secondary policy requires the borrower insuring the Accounts Receivables – the money owed by their customers for goods and services that have already been delivered – against the loan.

If a customer of the borrower pays unduly late, or doesn’t pay at all, the insurance company pays out to the lender.

 

The FCA’s tailored regulation of P2P Lenders is for the benefit of everybody

Author
Angus Dent
Date

A theme that has begun to emerge in alternative finance article headlines at the moment is that there is a perceived love-in between the FCA and peer-to-peer lending, with George Osborne an enthusiastic Cupid-like figure matching the two. The regulatory body has come in for criticism from the old guard that believe the old scourge of the banks has gone soft on the new “tech” whizz kids on the block. This isn’t helped by the frequently-cited, well-intentioned-but-slightly-undermining quote by economic secretary to the treasury Harriet Baldwin that government and fintech share a “beautiful friendship”.

George Osborne

 

Yet there are incongruities between news article headlines and article content. Take John Thornhill’s article, published in the Financial Times last week, which began with the suggestion that “a watchdog with the ‘right touch’ sounds ominously like one with a ‘light touch’ “, before proceeding to make some very reasonable points on why the FCA applies slightly different regulatory procedures to start-ups and small cap businesses than it does to centuries-old banking institutions. Throwing the same rule book would crush every start-up under a mountain of excessive regulation and process, and would negate much of the innovation sorely needed to replace the antiquated banking practices. The FCA’s “approach” should be commended as forward-thinking- let’s remember that it really is just an approach at the moment as the majority of the platforms are still in the midst of the lengthy and detailed regulatory process that certainly doesn’t feel light touch.

The revelations coming from the States regarding Lending Club have done nothing to dampen criticisms of the FCA/peer-to-peer perceived cosiness either. Yet it is the willingness for the FCA to work directly with peer-to-peer lending platforms that has, and will, prevent the blatantly reprehensible behaviour that wasn’t detected initially in the States; there, the industry has been regulated under a blend of existing consumer and banking regulation that has proven to be unsuitable. Working to tailor the regulation to the peer-to-peer sector will prevent swathes of old-fashioned banking malpractice carrying over to modern finance. Renaud Laplanche, by acting in his own self-interest, assumed a guise firmly rooted in the past, not endemic to the burgeoning P2P sector that prides itself on transparency and openness.

Every platform will now be keen to highlight the differences between themselves and Lending Club, although there will have been many who, this time last year, would have been perfectly happy to seek comparison with one of the biggest players in the global sector. However, if all must be tarred with the ubiquitous “Fintech” brush then there is one obvious point to make from a UK peer-to-peer lending view. We are very much the “fin” side of the portmanteau as true providers of alternative finance – the “tech” only applies to the platforms used to facilitate loans. Unlike Lending Club- which initially positioned itself as a social networking service and developed an algorithm called LendingMatch to identifying common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network to match lenders with borrowers- UK platforms are not primarily algorithm-driven and rely on due diligence processes at least as thorough as those of the banks to vet borrowers. But the Lending Club debate shouldn’t necessitate these explanations- this is (possible) criminal activity from a senior management team undoubtedly out to furnish their own pockets. The FCA will continue their stringent, tailored regulation of the industry to prevent this happening over here, regardless of the baseless accusations that they’re cutting corners to appease the government.