Today, we offer an opinion piece from crowdfunding intelligence platform, Another Crowd, with which Money&Co., has a close association, including the co-sponsorship of two alternative finance conferences (with another one coming up in November).
We live in a world where lawyers write labels, because manufacturers are afraid of litigation. So we have to be told that coffee is hot and knives are sharp, when really, we would only feel like complaining if knives were blunt and coffee were cold.
Now, the Financial Conduct Authority (FCA) is worried that investors in crowdfunding and peer-to-peer lending might not understand what they are doing, if Money Marketing's response to last week's call for input is anything to go by. Do consumer protection rules need to be stricter?
We always admired Tracey McDermott of the FCA Here's an article we wrote last October, when MPs were giving the FCA a hard time over investor protections. Ms McDermott pleased us greatly with hwer simple message, that alternative finance does involve taking risk, and investors need to go into it "with their eyes wide open." The regulator's job is to protect investors from liars, cheats and criminals of various kinds, but not from their own ignorance. If you don't know that knives are sharp, you shouldn't be in the kitchen.
We didn't like the suggestion some industry players made that crowd investments should have a minimum stake of a thousand pounds. That logic is flawed. You should only invest money you can afford to lose, and if you can afford to lose a thousand, you need to invest it in stakes of a hundred here and a hundred there. And now another troubling idea is in the air: The FCA call for input says: 'There is anecdotal evidence that suggests P2P investors in the past were relatively wealthy or knowledgeable."
It's one thing to be wealthy; to be knowledgable is another thing entirely. We've met wealthy people who are ignorant or badly informed, and plenty of clever people who don't have a lot of money. For that reason, we believe the answer is investor education.
We'd like alternative finance to be open to people who don't have a lot of money. minimum stakes make sense because of the operating costs of platforms and of people who are trying to raise funds. The regulator should not, in our opinion, impose any kind of barrier that uses wealth as a substitute for intelligence. Investing is like Gardening after all, as our friends at Money&Co. pointed out. lt's no more complicated than growing your own vegeables.
We'd like to see our industry, and our regulator, pay attention to how deals that people lose money on go bad in the first place. Sometimes it may be fraud, deception or conflict of interest, and sometimes it's the consequence of bad management and responsible risk taking.
We'd also like to see measures to ensures all investors, rich or poor, have access to information, and we'd like to see a review of due diligence regimes to ensure that information - and expert interpretations - are shared among many investors and are not hoarded by the few.
Money&Co.'s latest loan offering is filling up fast and is now over 94 per cent filled. This A-rated, five-year loan of over £121,000 is being sought by an independent adviser looking to use the funds to expand. The auction closes at 17:00 on Friday, July 29.
The offering has a current average gross yield of 8.9 per cent.
Our loans are only offered if our borrowers can clearly demonstrate affordability for the amount requested. Moreover, Money&Co. takes a charge on the assets of the company, which is exercisable if a borrower defaults. The relevant assets could then be sold and used to reimburse lenders. See our recent article on Money&Co.'s conservative attitude to vetting deals.
That said, remember that when lending, capital is at risk. See warnings on Home, Lend and FAQ pages.