Octopus Investments, the fast-growing UK fund management company that manages over £5.5 billion of assets on behalf of 50,000 customers, announced today that it is working with financial advisers to launch a new online lending product.
‘Octopus Choice’ will provide a middle ground between saving and stock market investing – and is the latest demonstration of the company’s enduring commitment to creating smart, simple solutions that add real value to advisers and their clients. By investing in a discretionary managed portfolio of asset-backed loans, customers will target higher interest rates than deposit accounts, but with less risk and volatility than stocks and shares.
The product launches on the back of the rapid growth and continued government support of ‘peer-to-peer (P2P) lending’ – with the recent launch of the ‘Innovative Finance Individual Savings Account (ISA)’ confirming its entry to the mainstream market. The new ISA allows interest generated through qualifying P2P products to be included within the tax-free wrapper, as well as permitting transfers of existing ISA balances.
All qualified financial advisers have had the scope of their investment permissions automatically widened to include online lending products, but uptake has so far been limited, and many advisers remain sceptical of the opportunity they present. Octopus Choice represents the first meaningful move to engage the adviser community in the development of this fast-growing market, having been developed in close co-operation with a number of financial advisers.
Simon Rogerson, CEO of Octopus Investments, commented:
“The growth of peer-to-peer lending shows no sign of stopping, and the sector presents a powerful opportunity for financial advisers to add value to their clients. But it’s currently being overlooked – and we want to change this. By working with the adviser community, we hope to help advisers play a central role in shaping the market as it continues to grow, developing a product that solves real needs for their clients.
“Because over the past few years, we’ve been hearing advisers ask the same question: how can I help my clients generate better returns than savings accounts, without over-exposing them to the ups and downs of the stock market? We think Octopus Choice offers an attractive solution, which can empower more and more people to make their money work harder for them.”
Investments into Octopus Choice will initially be allocated to loans secured against residential property – harnessing the company’s strong dealflow and successful track record of property lending through its Dragonfly Property Finance business. Since its launch in 2009, Dragonfly has made nearly 3,500 loans, totalling nearly £1.9 billion – of which less than 0.1% has gone unrecovered.
In line with its long-standing commitment to aligning its own interests with those of its customers, Octopus will also invest in each and every loan, on a ‘first loss’ basis.
“Not only does this show you just how confident we are in the quality of the underlying loans – it also provides investors with an extra layer of protection”, Simon Rogerson added. “We want to put our money where our mouth is.”
For those advisers looking to reduce exposure to equities, the product presents a stable and uncorrelated asset class that can diversify their clients’ investment portfolios without compromising on returns. The payment of monthly interest also gives clients a new way to generate a regular income from their savings.
In addition, Octopus Choice will provide advisers with the potential to develop new income streams. Facilitating both up-front and ongoing fees, it will allow them to broaden the scope of their advice to include some of their client’s deposits that are earning low levels of interest in savings accounts or cash ISAs – money which, until now, advisers have been ill-equipped to serve.
Richard Lord, Managing Director of Bartholomew Hawkins – a Cardiff and Bristol-based firm that provides independent financial advice to both private and corporate clients – commented:
“Beyond ISAs and the now maturing stock of structured products, there has been very little that we as financial advisers have been able to recommend in this area. As the name suggests, this new product from Octopus will provide us with additional choice – a middle ground solution that targets higher rates than deposit accounts, but with less risk and volatility than stocks and shares. We’re really excited about what the product could mean for our clients, and are delighted to be involved in shaping it.”
Guy Tolhurst, Managing Director of in:review – the organisation formally known as SIPP Investment Platform, established to review alternative investments for member directed pensions schemes and investment professionals – commented: “
Octopus Choice could be a great fit with both pensions and ISAs, as it holds out the prospect of higher yields than cash, with lower risks than shares. It’s not surprising that people have been cautious of peer-to-peer lending to date – it’s a new area, and both SIPP operators and advisory firms will need to see high quality independent due diligence before they commit. But we know that many of our subscribers are interested in this sector – and they will view the entry of a major investment provider like Octopus into the market as a very positive development.”
Daniel Kiernan, Research Director of Intelligent Partnership – the UK’s leading curator of education and insights on alternative investments – commented:
“This is good news. The research we carried out for our Alternative Finance Industry Report indicated that up to now advisers have been very wary of peer-to-peer lending, and in fact many were quite uninformed about the sector. With Octopus stepping in that looks set to change. They have a done a good job of reaching out and educating advisers about tax efficient investments, so I’m sure they can repeat that success in the fast-growing online lending market.”
To capture their opinions and insights, Octopus has launched a public phase of testing with advisers across the UK – before rolling out a full version in due course.
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Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 3942880. We may record telephone calls to help improve our customer service.
Octopus Choice is a trading name of Octopus Co-Lend Limited, 33 Holborn, London EC1N 2HT, which is authorised and regulated under interim permissions by the Financial Conduct Authority. The firm is on the Financial Services Register and its FCA registration number is 665121. Issued: April 2016.