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Thought Leadership
A valuable addition to a balanced portfolio
Severe fluctuations in financial markets following the
global financial crisis, and more recently following the
Brexit vote, have resulted in a low interest rate environment
that shows no sign of improving in the short term. This has
had a significant influence on how investors and providers
consider different investment solutions. Diversification
within a balanced portfolio is the holy grail for most
investors – so a valuable addition to their mainstream
holdings could be an investment in an unlisted, mature
company with established assets and cash flows. As such,
an uncorrelated portfolio might contain investments that
are unlisted and therefore not exposed directly to the
highs and lows of the stock market.
Legislation and widening parameters of the IFISA
and pension freedoms
The new Innovative Finance ISA (IFISA), introduced in April
this year, offers an opportunity for advisers to introduce
clients to the diversification benefits of crowdfunding.
Draft legislation on widening the parameters of the new
IFISA has been published revealing that, from November,
investors will be able to put some of their ISA allowance
into bonds and other debt securities made through P2P
and crowdfunding sites.
Another boost to this sector is expected to come from
SIPPs as more retirees take advantage of pension
freedoms. Additionally, new regulations capping high-networth
individuals’ pensions contributions will mean that
investors look for other vehicles to improve their returns
and manage their tax relief.
Investors’ ability to place this type of bond within these tax
wrappers may prove attractive to income hungry investors.
Conclusion
With interest rates at all-time lows, a number of clients
will be unhappy with the returns they’re getting from their
savings. As people seek better returns and companies
become more creative in how they raise money, we believe
the debt-based crowdfunding proposition should continue
to grow. Crowdfunding may give financial advisers an
opportunity to advise on a portion of their portfolio
that they don’t already. This may become increasingly
attractive when an investment is made through a SIPP or
ISA wrapper. Clients may not have the time or the ability to
differentiate between the myriad of crowd offers – advisers
have a valuable role to play in guiding their clients in this
new and innovative market.
EIS Yearbook 2016/17
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