Time to bridge alternative finance knowledge gap - study finds
New research suggests financial advisers require more guidance on alternative finance options.
A recent study suggests that the alternative finance industry needs to educate financial advisers much more in areas such as peer-to-peer lending and equity crowdfunding.
According to a survey carried out by alternative investment consultants Intelligent Partnership, the vast majority of financial advisers are unaware of key developments in the sector.
It found that only 7% of those surveyed realised that the Financial Conduct Authority (FCA) now regulates alternative finance, and just 13% understood that some platforms used contingency funds to protect investors against losses.
With the launch of the new Innovative Finance ISA in April 2016, alternative finance is primed to become more popular with mainstream investors.
A report, Future Trends in UK Banking, compiled by the Centre for Economics and Business Research, indicates that alternative finance could be worth £12.3bn a year by 2020.
Daniel Kiernan, Associate Director of Intelligent Partnership, said: “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.”
Equity crowdfunding on the other hand is viewed as a more perilous proposition as it involves taking equity stakes in small or unproven companies.
The model has nevertheless proved successful for companies such as Brewdog, Scotland’s largest craft brewer, which recruited around 14,000 shareholders in three rounds of fundraising between 2010 and 2014.
The world of alternative finance is rapidly maturing, with some platforms allowing investors opportunities to co-invest with experienced angels, access EIS and SEIS tax reliefs, utilise the services of professional fund managers and provide capital alongside AIM listings.
For advisers who have no knowledge of the alternative finance sector though, the message is simple, according to Guy Tolhurst, Managing Director of Intelligent Partnership: “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.”