In August, former chief executive of the Financial Conduct Authority (FCA), Tracey McDermott, expressed concerns that the rapid growth of the P2P marketplace could leave some investors unaware of the risks.
However, Robert Pettigrew, director of the Peer-to-Peer Finance Association (P2PFA), insisted that this was not the case.
“There is no evidence that investors in P2P finance products systematically underestimate the risks of their investment decisions.
“Given the impressive levels of growth in P2P finance over the last decade, the base of investors has broadened considerably … and made it even more important that those participating are fully cognisant of the risks to which they are exposed.”
Robert explained that although approaches varied depending on the company, the P2PFA was dedicated to ensure investors were aware of the risks.
“Different platforms have adopted a variety of approaches to ensure a high level of consumer understanding, but with continued grow and expansion in the sector, the focus on making sure that all investors have an awareness and understanding of the risks of peer-to-peer finance products will continue to be a major priority for P2PFA platforms.”
Following Robert’s assurances, Bridging & Commercial decided to take a look at some of the ways P2P lenders inform investors of the risks they could face.
Louis Alexander, managing director of The Bridgecrowd, explained that the firm requires all new investors to complete a questionnaire which assesses their level of knowledgeability.
“We only select investors to join that have a suitable level of knowledge of loans, property and investing.”
Louis suggested that investors would only be recommended to seek specialist advice depending on their level of experience.
“If they are new to a particular sector, then they should seek advice.
“In our sector of bridging loans, investors should only really seek advice if they do not understand the property market or mortgages.”
LendingCrowd recommends that all investors seek independent financial advice before entering into any type of investment, including lending through LendingCrowd.
The platform runs a dedicated ‘Risk Matters’ page, which shows investors the best way to spread risk.
These risks include:
- Bad debt: The possibility that a loan may not be fully repaid
- Access to money: Investors have committed their money for the duration of the loan
- Borrower repay early: Borrowers can repay their loan early without incurring fees
- Idle money: Investors will not earn interest unless they have placed a bid
Stuart Lunn, CEO of LendingCrowd, said: “…[We] recommend that investors diversify their investments as much as possible by lending to as many different borrowers as they can, to help reduce the impact of any losses on their portfolio.
“We encourage all investors, no matter how long they have been with us, to review their portfolio regularly to ensure they are adequately diversifying their investments.”
The company also publishes regular blogs on the best ways to spread risk.
Landbay does not require investors to seek financial advice, however they encourage investors to do so if they are unsure about investing in Landbay.
Landbay also offers a risk statement on its website, which includes its default rates since 2014.