Sophie Coles, Director of Business Development, Squirrl.com, looks at whether peer funding could be a solution for IFAs in the post RDR world:
“To state the obvious – it’s inevitable the Retail Distribution Review (RDR) will have a major impact on the IFA sector. The looming implementation of the RDR represents the biggest overhaul of the UK retail investment sector for decades.
The effect of the ‘cliff-edge’ abolition of commission charges in favour of fees has convinced the likes of the Sunday Times to predict 3,000 firms are set to go out of business. While many dispute this figure, few argue that IFAs will struggle.
To prosper in the post-RDR world, costs will have to be slashed and new income streams developed. It’s in this area – revenue generation – that there’s a rare piece of positive news.
In a ground-breaking deal for the sector, we’ve become the first peer funder to establish formal links with independents within the financial industry. The agreement allows Matrix (http://matrixtax.co.uk/) to promote and market our products – secure loans to established companies using a leasing model – to their 700-stong network of IFAs, accountants and legal practices.
The deal represents an exciting opportunity for IFAs as peer lending is not covered by the RDR. Hence advisers can earn commissions for their work in this sector.
The system will operate in the following manner:
- after registering as an account manager on the Squirrl.com website, financial professionals can create individual client accounts
- via their account manager, clients choose the level of risk (low, medium or high) and the amount of money they wish to invest
- Squirrl.com will automatically bid on listed investment portfolios that match an individual client’s requirements
- financial professionals do not take money on behalf of their clients – instead investors transfer funds from their bank account directly to a secure bank account
- investors pay no charges – instead Squirrl.com pays a commission directly to their account manager
It’s important to recognise that peer funding is unregulated – however Squirrl’s model of securing savers’ money against a portfolio of cash generating assets is significant in mitigating risk. As to is the fact that Squirrl only work with established businesses and the contracts within each security portfolio are credit enhanced.
Although peer funding is still in its infancy, it’s a sector that’s growing in popularity due to a combination of technology, the poor rates offered to savers and a continued mistrust in the high street banks.
Peer funding is not only an exciting opportunity for financial professionals as a source of income, it also provides great returns for investors, and a much needed alternative source of finance for suppliers.”
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