Only 8% of financial advisers would invest, or already have invested, their own money into peer-to-peer lending schemes, according to research from the Yorkshire Building Society.
Advisers are concerned about consumers’ low levels of understanding of the potential risks of peer-to-peer, which is not covered by the Financial Services Compensation Scheme (FSCS) and can mean savers lose capital as well as interest while also facing restrictions on withdrawing money.
In addition, 82% of advisers surveyed believe customers do not understand peer-to-peer lending rules.
The Yorkshire’s study among investment specialist advisers found just 4% have invested in peer-to-peer while another 14% would consider investing their own money.
Last week the Government confirmed it plans to introduce from next April a third type of ISA, the Innovative Finance ISA, allowing for up to £15,240 tax-free investment in the peer-to-peer sector.
The Yorkshire, which does not offer any peer-to-peer investment options, has created a guide to the sector to increase levels of understanding of how it works.
Advisers are braced for increased interest from clients about investing in peer-to-peer once it is covered by the trusted ISA regime and believe the new ISA will provide further momentum for the growth in the sector.
45% believe interest in peer-to-peer will grow as new savings rules come into effect and 20% have already seen increases in inquiries from clients about investing in peer-to-peer over the past 12 months.
However 62% say they would never invest their own money in peer-to-peer despite the potentially attractive rates on offer, while another 20% are undecided.
Forecasts predict strong growth for the peer-to-peer industry, which almost trebled in size last year to be worth more than £1.3 billion. This compares to the £57bn placed in cash and stocks and shares ISAs.
Andy Caton, executive director at Yorkshire Building Society, said: “Investing in peer-to-peer can offer strong possible returns but people need to be fully aware of the possible risks and costs involved.
“It is clear that many financial advisers have concerns about consumers’ understanding and are unwilling to invest their own money in peer-to-peer despite the potential returns.
“It is good that the Government has decided to create a new and separate type of peer-to-peer ISA instead of linking it to the existing stocks and shares option, which will help to limit potential confusion among consumers.
“We hope our research and guide highlights the importance of making sure the risks and possible returns are considered. We would urge anyone considering investing in peer-to-peer to discuss their options with a professional adviser.”
