BondMason, a direct lending service for investors that focuses on peer to peer lending opportunities, has released a note on recent actions in the SIPP space (Self Invested Pension Plans). Stephen Findlay, CEO of BondMason, says that SIPP administrators are right to tread carefully when reviewing non-standard assets and that providers are likely to review non-standard investments following recent FSCS fines. However, more reliable non-standard investment vehicles, such as peer to peer lending opportunities, can still form an important part of SIPP investors’ portfolios to enable them to achieve the returns they need to fund their retirement.
BondMason shares that an estimated one million people have taken up a SIPP since the UK Government introduced the “Pension Freedom Reforms” in April 2015 and providers are experiencing increasing demand. In line with this, there has to be an open discussion between SIPP providers and investment providers about the vast discrepancy in the quality of non-standard investments available to SIPP clients, and the perceived risk that they bring.
“Lending, including P2P Lending, can be an effective way of accessing attractive risk-adjusted returns for your portfolio. Our clients have achieved an average gross return in excess of 8.0% p.a. across 2015, 2016 and 2017,” said Findlay. “It’s therefore understandable that more and more SIPP clients are asking their providers for access to non-standard assets, including P2P lending.”
Findlay said the recent fines were the results of investments in store pods, carbon credits and overseas property. While these opportunities may appear attractive on the surface they can be difficult to assess due to their “esoteric” nature.
“These high-profile cases can be damaging to those who offer legitimate and well-structured non-standard investments, leading SIPP administrators to restrict investment in any non-standard asset,” states Findlay. “P2P lending is a growing and complex asset class, with a wide range of product providers, so it can be difficult and time consuming for investors to understand the risks and opportunities in this market. We work closely with SIPP providers so that they can review, conduct due diligence on, and get comfortable with our non-standard investment offering. We continually assess the overall market for Direct Lending, ensuring our clients and partners understand the risks as well as the opportunities”
John Dowding, Technical Director at Morgan Lloyd, a SIPP administrator which works with BondMason to offer a SIPP-compliant P2P Lending service, explains they are helping customers find better returns. But these non-standard investments such as carbon credits result in very little return and may be outright scams. But more legitimate non-standard asset classes including hedge funds, structured products and P2P Lending – are becoming increasingly popular with SIPP providers for portfolio diversification.
“When it comes to P2P Lending, I would say it comes high up the scale of respectability in terms of the non-standard asset scale, not least because of its endorsement as an acceptable investment for ISAs,” says Dowding.
According to BondMason, the challenge is to adequately assess the investment opportunities available but being classed as non-standard does not automatically mean an investment opportunity should be disregarded.
“When vetting lending partners and P2P Lending platforms, we assess each platform rigorously on its experience and credibility. This is one of our most important principles. We want to see that they understand risk and return, and will be able to provide appropriate loan investment opportunities for our clients, including SIPP investors. To date, we have only approved 33 out of more than 100 platforms that we’ve reviewed”, adds Findlay.
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