A new online lending product has been launched by UK fund management company Octopus Investments which hopes to unlock the potential of the peer-to-peer market for financial advisers.
Called ‘Octopus Choice’, it sets out to provide a middle ground between saving and stock market investing.
It comes at a time of rapid growth and continued government support of ‘peer-to-peer (P2P) lending’ with the recent launch of the ‘Innovative Finance Individual Savings Account (ISA).’
Octopus said in a statement: “All qualified financial advisers have had the scope of their investment permissions automatically widened to include online lending products, but uptake has so far been limited, and many advisers remain sceptical of the opportunity they present. Octopus Choice represents the first meaningful move to engage the adviser community in the development of this fast-growing market, having been developed in close co-operation with a number of financial advisers.”
CEO of Octopus Investments Simon Rogerson (pictured above) said: “The growth of peer-to-peer lending shows no sign of stopping, and the sector presents a powerful opportunity for financial advisers to add value to their clients. But it’s currently being overlooked – and we want to change this. By working with the adviser community, we hope to help advisers play a central role in shaping the market as it continues to grow, developing a product that solves real needs for their clients.
“Because over the past few years, we’ve been hearing advisers ask the same question: how can I help my clients generate better returns than savings accounts, without over-exposing them to the ups and downs of the stock market? We think Octopus Choice offers an attractive solution, which can empower more and more people to make their money work harder for them.”
Initial Octopus Choice investments will be allocated to loans secured against residential property. This, says Octopus, harnesses the company’s strong deal flow and successful track record of property lending through its Dragonfly Property Finance business. Dragonfly, since its launch in 2009, has made almost 3,500 loans worth a total of around £1.9 billion. Less than 0.1% has gone unrecovered.
Rogerson again: “Not only does this show you just how confident we are in the quality of the underlying loans – it also provides investors with an extra layer of protection. We want to put our money where our mouth is.”
Octopus says that for those advisers looking to reduce exposure to equities, the product presents a stable and uncorrelated asset class that can diversify their clients’ investment portfolios without compromising on returns. What’s more, the payment of monthly interest also gives clients a new way to generate a regular income from their savings.
The firm also reckons that Octopus Choice will provide advisers with the potential to develop new income streams. They say that by facilitating both up-front and ongoing fees, it will allow them to broaden the scope of their advice to include some of their client’s deposits that are earning low levels of interest in savings accounts or cash ISAs – money which, until now, advisers have been ill-equipped to serve.
Richard Lord, Managing Director of Bartholomew Hawkins – a Cardiff and Bristol-based firm that provides independent financial advice to both private and corporate clients – said: “Beyond ISAs and the now maturing stock of structured products, there has been very little that we as financial advisers have been able to recommend in this area. As the name suggests, this new product from Octopus will provide us with additional choice – a middle ground solution that targets higher rates than deposit accounts, but with less risk and volatility than stocks and shares. We’re really excited about what the product could mean for our clients, and are delighted to be involved in shaping it.”
Guy Tolhurst, Managing Director of in:review – the organisation formally known as SIPP Investment Platform, established to review alternative investments for member directed pensions schemes and investment professionals – said: “Octopus Choice could be a great fit with both pensions and ISAs, as it holds out the prospect of higher yields than cash, with lower risks than shares. It’s not surprising that people have been cautious of peer-to-peer lending to date – it’s a new area, and both SIPP operators and advisory firms will need to see high quality independent due diligence before they commit. But we know that many of our subscribers are interested in this sector – and they will view the entry of a major investment provider like Octopus into the market as a very positive development.”
Daniel Kiernan, Research Director of Intelligent Partnership – the UK’s leading curator of education and insights on alternative investments – said: “This is good news. The research we carried out for our Alternative Finance Industry Report indicated that up to now advisers have been very wary of peer-to-peer lending, and in fact many were quite uninformed about the sector. With Octopus stepping in that looks set to change. They have a done a good job of reaching out and educating advisers about tax efficient investments, so I’m sure they can repeat that success in the fast-growing online lending market.”