In my ongoing quest to democratize the investing landscape, I began exploring ways to engage financial advisors into the crowdfinance industry – specifically within P2P lending realms.
Particularly with interest rates at historic lows and social security on the brink of insolvency, it is imperative that small retail investors be able to access alternative asset classes – such as P2Pi – that offer higher yield, less volatility and little correlation to broader markets.
Because advisors serve as an important conduit between retail investors and investment opportunities, I believe that they can play an integral role in furthering the growth of marketplace lending, narrowing the nation’s wealth divide and fostering economic prosperity.
This is why, in September of 2014, I reached out to my friend Felicia Voloschin, an accomplished CPA and CFP and founder of Rockin Finance. I wanted to know what trade publications she reads, what conventions she attends and most importantly, what fixed-income asset classes she’s been recommending to clients in today’s near zero interest rate environment.
In addition to providing me with a wealth of information, she introduced me to colleague of hers, Chris Staples, a fellow CFP and current member of the Financial Planning Association. Chris had sat on the FPA’s State of Georgia Chapter Board of Directors as the Pro Bono Chair from 2011 to 2014.
One October afternoon, in the midst of what seemed like a typhoon, I met Chris at a local Starbucks. Our scheduled one hour meeting quickly turned into three and a half. As the rain came pummeling down and thunder roared in the background, we discussed crowdfinance, P2P investing, marketplace lending, the unfairness in current market structure and the plight of the retail investor.
Chris talked a lot about retail investment strategies. I listened intently as he detailed some of the challenges given today’s low interest rate environment and current volatility in the equity markets. Chris introduced me the concept of “deep risk”. Bill Bernstein, author of the book “Deep Risk” defines “deep risk” as a loss that one cannot recover from such as inflation or behavior risk. “Shallow risk”, on the other hand, is explained as a potential loss that an investor can recover from. Market volatility is the perfect example of shallow risk. The more Chris spoke, the more I began to realize just how much “deep risk” today’s retail investor is unwittingly assuming simply by hoarding cash or investing in lower yielding conventional fixed-income asset classes. Particularly with inflation eating away at savings, it becomes ever more crucial for retail investors to access alternative asset classes such as P2Pi.
In the days following our meeting, Chris forwarded me an article he wrote which was aimed at alleviating his clients’ fears over recent market volatility. The piece, which essentially stressed the importance of maintaining investment integrity though turbulent times, compared sitting on cash to building a well-diversified investment portfolio. It illustrated how investors who weathered economic storms fared better than those who sat on the sidelines.
With too many retail investors sitting on the sidelines shouldering “deep risk”, it occurred to me that a white paper presenting the big picture opportunity of P2P, and showing financial advisors how P2P fits in a retail retirement portfolio would be beneficial to the financial ecosystem. Such a report would not only help accelerate the growth of marketplace lending, it would serve the investing public and help democratize the P2P investor composition which had recently become monopolized by institutional investors.
I sent Chris back an email which read, “I’d welcome the opportunity to collaborate at some point on a similar-themed report but with comparing traditional fixed-income assets classes to an average P2P portfolio… Even in the peer-to-peer space, it feels like the institutions have begun taking the “peer” out of P2P.”
Agreeing that there was a shortage of P2P educational materials written specifically for the financial advisor, we decided that one of these days we would get around to co-authoring such a piece.
In January 2015, I attended my first FPA event with Bo Brustkern, CEO of NSR Invest, a P2P analytics and investment platform designed to support the distinct needs of financial advisors their retail clientele. Bo – the final speaker of the two-day conference – was there to introduce P2P and online lending to a room full of certified financial planners. After spending 48 hours interacting with the attendees, I was surprised to find that none of the financial planners I spoke with had been following marketplace lending. I became even more eager to see their response to Bo’s presentation.
After sitting through numerous sessions that basically promoted the same old mundane asset classes, Bo approached the stage to introduce P2Pi. I could only liken it to what it must have been like watching Steve Jobs present the Macintosh – following the likes of Texas Instruments or Tandy – at an early 80s Comdex convention.
Shortly after I returned, I called Chris to describe my first FPA experience. We decided that there was no better time to begin collaborating on that white paper. As we were brainstorming, we discussed P2P as a fixed-income diversifier and its significance in a retirement plan.
Unfortunately, investing in P2P with retirement dollars is not as easy as it should be. It requires purchasing the assets through a self-directed IRA (SDIRA) which is known to be a timely and cumbersome task. However, I knew of some work being done – behind the scenes – to streamline the SDIRA process.
I brought in my friend and colleague, Jim Jones, a self-directed IRA expert who has been on the forefront of some of these innovations in the self-directed IRA space. Much of Jim’s efforts are focused on incorporating technology to accelerate the P2P investing process and diminish the account management fees.
Combining our knowledge of P2Pi with decades of experience in financial advisory and retirement planning, the three of us spent the next month and a half researching and drafting a report to introduce today’s Financial Advisor to the world of P2Pi. The result of our efforts is a white paper called, “The Financial Advisor’s Guide to P2P Investing” – the first in a series of papers that will serve financial advisors and their retail clientele.
The purpose of our initial white paper is to introduce financial advisors to the world of P2Pi, weigh P2Pi against other asset classes, explore how P2Pi fits into a modern retail retirement portfolio, and illustrate ways for financial advisors to help their clients maximize P2Pi returns as well as access credit through online lending platforms.
We believe that armed with the knowledge and resources, the financial planning community can bring the “Peer” back into “Peer-to-Peer” lending and help re-democratize the P2Pi investor base – which is presently saturated with institutional capital. Our paper illustrates how financial advisors can be essential to balancing the industry’s demand/supply discrepancy by bringing more quality borrowers to online lending marketplaces. Most importantly, our paper underscores the economic significance of replenishing retail retirement portfolios with P2P, an asset class that offers higher yield, less volatility and little correlation to broader markets.
You can download the white paper at https://daraalbright.files.wordpress.com/2015/04/the-financial-advisors-guide-to-p2pi-final.pdf