Cricket fans among you may have heard about the ‘corridor of uncertainty’. It describes when a bowler’s delivery is pitched into an area where the batsman’s margin of error is magnified hugely. He’s left unsure whether to play forward or back, or to leave well alone, and faced with the risk of doing the wrong thing, his indecision often proves decisive.
Which brings me to 2017. I can’t recall a new year being anticipated with quite as much apprehension as this one. Political anxieties on both sides of the Atlantic are certain to weigh heavy on investment and currency markets. With sterling at risk of depreciating further, and with the era of low interest rates in the US possibly coming to an end, the world is likely to get more expensive for us Britons. All of this means that 2017 could be dominated less by the pursuit of growth and more by the motivation to avoid doing anything to make you poorer – hence the corridor.
We shouldn’t concede defeat just yet, but investors will need to be prudent and avoid complacency, while savers have to get much cannier. For example, the Chancellor in his Autumn Statement sought to appeal to savers with the introduction of a high-paying investment bond. However, given that investment will be limited to just £3,000, this new scheme hasn’t roused the nation and looks like doing little to solve the UK’s saving crisis.
So how can clients get more from less in 2017? Most likely by embracing the fact that technical innovation in financial services is disrupting traditional methods. Some iterations of peer-to-peer (P2P) lending occupy the ‘sweet spot’ between equity market risk on the one hand and cash deposit accounts on the other. For example, clients prepared to invest in asset-backed residential property via a P2P platform (or more snappily titled, ‘clicks and bricks’), while bearing in mind the higher risks associated with this type of investment, can achieve some of the best investment rates on the market.
The peer-to-peer lending market has become increasingly complex in recent years, and those advisers and clients that are considering the market for the first time in 2017 will need to appreciate the full diversity of options in play. Above all, investors should be asking whether their would-be P2P loan investments are secured or unsecured; the latter clearly being higher risk than their asset-backed alternatives. The next innovation we’ll hopefully see is the inclusion of these secured P2P loans within Self-Invested Personal Pensions, which would be another significant step forward.
As long as P2P lenders continue to provide competitive rates to borrowers, growth within this space will continue. If the pound in our pockets is going to be under continued pressure, then anything to help reduce that corridor of uncertainty would be welcome.
Simon Rogerson is Chief Executive Officer at Octopus Investments
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