The alternative finance market in the UK is expected to exceed £2 billion of funding provision by the end of 2016. Alternative finance covers a variety of new financing models that have emerged outside of the traditional financial system, that connect fundraisers directly with funders often via online platforms or websites.

What do we mean by Alternative Finance?

Alternative finance is an umbrella term that covers a range of very different models from people lending money to each other or to businesses, to people donating to community projects and businesses trading their invoices. The distinctions between these models are important as they differ enormously in the types of people and organisations that use them, why they use them and the nature, form and amount of financial transactions that take place. Below, we try to give an understanding of each platform and their use:

Different motivations driving usage of alternative finance

The motives behind fundraisers turning to alternative sources of finance also vary depending on the model.

Those who fundraised through donation and reward–based crowdfunding valued most having more control over their projects.

In contrast, P2P business lending borrowers and entrepreneurs that had fundraised via equity–based crowdfunding valued the speed at which they could access funding and how easy the platform was to use.

For P2P consumer borrowers the primary motive was securing a more favourable interest rate as well as a higher quality of customer service.

Those trading invoices through alternative finance platforms did so largely to source working capital; whilst those utilising pension–led finance valued the ability to invest their own pension into their businesses.

In a similar vein, the motivations for funding also differed significantly across the industry.

Those in P2P lending and equity–based crowdfunding were primarily driven by the prospect of financial returns with less concern for backing local businesses or supporting social causes.

In contrast those in reward and donation–based crowdfunding were highly motivated by fundraisers’ ideas and the potential to make a positive difference with their money.

For instance, the prospect of obtaining financial return was ‘important’ or ‘very important’ to 82% of P2P business lenders and to 96% of investors in equity–based crowdfunding, whereas this was only ‘important’ or ‘very important’ to 24% of people who bought community shares.

Survey responses from users of donation–based crowdfunding highlight how only 22% of people have funded one or more projects that they would benefit from themselves, whereas 46% have funded projects that others in or outside their local area could use.

The socio–economic impact of alternative finance

By December of 2014, the UK alternative finance market had provided working, growth and expansion capital to an estimated 8,000 SMEs as well as crucial funding for hundreds of community and voluntary organisations across the country. Presently, over 100,000 people will have acquired personal loans from P2P consumer lending platforms, of which many are sole–traders borrowing money for business purposes. The importance of the alternative finance market was also highlighted in the surveys of users of alternative finance platforms, where many fundraisers stated that they would have struggled to source funds otherwise.

This is particularly true in donation–based crowdfunding where 64% of those who raised money say it is ‘unlikely’ or ‘very unlikely’ they would have been able to access the funds they need if they could not have turned to alternative finance.

53% of those using reward–based crowdfunding thought it was ‘unlikely’ or ‘very unlikely’ that they would have been able to get funding elsewhere.

Impact on business growth

Since successfully raising finance, individuals and businesses have seen a variety of positive impacts:

75% of those that received funding through reward or equity–based crowdfunding launched a new product or service after funding rounds.

70% of SME borrowers of P2P business lending have seen their turnover grow since secured funding with 63% of them recording a growth in profit.

Over 30% of those who raised funds via P2P business lending or invoice trading, reported that they would have been ‘unlikely’ or ‘very unlikely’ to get funding elsewhere.

79% of businesses had attempted to get a bank loan before turning to P2P business lending, with only 22% being offered finance.

Increasing philanthropic giving and volunteering

Alternative finance models also facilitate significant giving to good causes predominantly through the reward, community shares and donation–based models as well as to renewable energy ventures through debt–based securities.

For donations and reward–based crowdfunding just 23% and 21% stated the money they donated or pledged would otherwise be used for charitable giving, indicating that alternative finance is providing significant additional giving to social good projects.

As well as the funds provided, crowdfunding is helping increase volunteering and social action:

Results show that 29% of backers on donation–based crowdfunding platforms had also given advice and feedback to campaigns and 27% had offered to help or volunteer with the project.

Correspondingly, 34% of fundraisers have seen an increase in volunteerism after they fundraised through donation–based crowdfunding.

What to consider?

If you are considering raising finance for your business, project or venture through crowdfunding, there are a number of factors that you might want to consider. We have compiled a list of advantages and disadvantages that we believe highlight the pro’s and con’s of crowdfunding.

Advantages

Eight advantages of crowdfunding:

it can be a fast way to raise finance with no upfront fees

pitching a project or business through the online platform can be a valuable form of marketing and result in media attention

sharing your idea, you can often get feedback and expert guidance on how to improve it

it is a good way to test the public’s reaction to your product/idea – if people are keen to invest it is a good sign that the your idea could work well in the market

investors can track your progress – this may help you to promote your brand through their networks

ideas that may not appeal to conventional investors can often get financed more easily

your investors can often become your most loyal customers through the financing process

it’s an alternative finance option if you have struggled to get bank loans or traditional funding

Disadvantages

Six disadvantages of crowdfunding:

it will not necessarily be an easier process to go through compared to the more traditional ways of raising finance – not all projects that apply to crowdfunding platforms get onto them

when you are on your chosen platform, you need to do a lot of work in building up interest before the project launches – significant resources (money and/or time) may be required

if you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing

failed projects risk damage to the reputation of your business and people who have pledged money to you

if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept

getting the rewards or returns wrong can mean giving away too much of the business to investors

Before deciding on a crowdfunding platform for investment, we advise that you consider all other forms of finance to find the one that most suits your needs.

More than 100,000 pensioners in poor health who were mis-sold annuities will be compensated under a formal redress scheme being enforced by City watchdogs.

The annuity mis-selling scandal explained | What are annuities?

Annuities are a type of insurance that turn a pension into a lifetime income. Until March 2014, when the Government announced

An investigation by the Financial Conduct Authority suggests one in three insurance companies frequently failed to ask savers about their health or alert customers to better deals for which they qualified. Of particular concern were sales made over the phone, where the regulator found evidence that staff failed to explain that they could have got higher rates because of their health. Annuity rates can be boosted for a range of conditions from high blood pressure, which may result in a 2 per cent lift for savers, to more serious illnesses such as cancer or strokes which can add 40 or even 50 per cent to the value of payments.

In March 2015 this newspaper revealed the watchdog’s plans to compensate pensioners who should have been sold “enhanced” or “impaired life” annuities. The regulator estimated the average affected customer, with a pot worth £25,000, would have lost out on between £120 and £240 in annual payments. Over a typical 25-year retirement this equates to £6,000.

Firms are now being forced to review all annuity sales since 2008 and compensate customers who have suffered financial loss as a result of being offered the wrong deal. The study investigated seven firms which make up a third of the annuity market, where it is estimated 90,000 people have suffered financial loss.

The FCA will now investigate the remaining third to check for mis-selling. Annuity holders are being urged to contact their providers if they believe they may have been mis-sold. Baroness Altmann, the former pensions minister, said the results were “further proof that the annuity selling process has failed customers”.

Yvonne Braun, director of long-term savings and protection policy at the Association of British Insurers, which represents annuity providers, said: “The industry has been focused on improving people’s experiences of making retirement choices in recent years and is working hard to ensure the freedom and choice reforms significantly improve customer engagement in pensions.”

Debt solutions overview

There are lots of debt solutions available – which one will be suitable for you depends on your personal circumstances. Aside from the options below, you may be able to reach an informal arrangement with the people or organisations you owe money to (also known as your creditors) to make payments based on what you can afford after essential household outgoings. Under this sort of arrangement you would also ask them to freeze interest and charges.

(i) Debt Management Plan

This is an arrangement set up between you and your creditors whereby you pay back what you can afford on non-priority debts that aren’t secured against your home after taking into account your household bills. It sets out how much you will repay and agrees a timetable for repayment. You normally make one monthly payment to the debt management organisation which in turn pays your creditors for you. Debt Management Plans are usually arranged for you by a third party and many charities and organisations can arrange one for free.

Choosing a debt management plan provider

Before you decide to take out a debt management plan it is important to get some advice. There are debt advice charities who offer this service for free. The debt advice charities listed in our debt advice locator tool will be able to help you work out if a debt management plan is the right solution for you. They can also give you advice on other options for dealing with your debts.

(ii) Individual Voluntary Arrangement (IVA)

Warning!

Setting up an IVA can cost several thousand pounds in fees – made up of a set-up charge and an annual management fee.

An Individual Voluntary Arrangement is a legally binding agreement between you and the people you owe money to. It freezes your debts and allows you to pay them back over a set period, usually five years. Any money you still owe is then written off. You can apply for an IVA if you owe more than approximately £15,000 and you’ll usually have to repay at least 20p of every pound you owe, with a minimum monthly repayment in the region of £200. The IVA is set up by a qualified professional called an Insolvency Practitioner, who will work with you to put together an appropriate proposal to take to your creditors for approval.

What you can use an IVA for

An IVA can be used to help pay off many common debts, including overdrafts, personal loans, credit and store cards, catalogue and hire purchase, mortgage shortfalls, Council Tax arrears and money owed to HM Revenue & Customs. However, you can’t use an IVA to pay off, for example, your mortgage and other debts secured on your home, some rent arrears, certain types of car finance, magistrates’ court fines, maintenance, Child Support arrears or student loans. Check with a debt advice agency what else might be excluded or included.

How to set up an IVA

You have to set up an IVA through an Insolvency Practitioner. There are fees to pay to the Insolvency Practitioner which are usually taken from your monthly payments. You should not have to pay any up-front charges before your IVA has been set up. An IVA is a legally binding agreement so you need to make sure it’s right for you. It’s really important to get free debt advice before you take one out to discuss whether there are other options available to help you manage your debts.

(iii) Debt Relief Order

A Debt Relief Order is an official order that freezes your debts for a year. It can only be granted in particular circumstances and for certain debts. It costs £90 to arrange a Debt Relief Order and you can pay in instalments over six months – however, you need to have paid the fee in full before your application will be looked at.

Who can apply for a Debt Relief Order?

You can apply for a Debt Relief Order if:

You have qualifying debts of less than £15,000 – see the next section for what count as qualifying debts

You are on a low income and have £50 or less spare each month after paying your household bills

You don’t own things of value or have savings over £300 (note that a house with negative equity still counts as having value)

You don’t own a vehicle that is worth more than £1,000

You have lived, had a property or owned a business in the last three years in England, Wales or Northern Ireland

You can’t apply for one if:

Your creditors have applied to make you bankrupt but the hearing hasn’t yet taken place (unless your creditors agree that you can still apply)

You have been given a Bankruptcy Restrictions Order or Undertaking

You have petitioned for bankruptcy but your petition has not yet been dealt with – however, this doesn’t apply if you’ve petitioned for bankruptcy and the judge has referred you for a debt relief order instead

You’re currently bankrupt

You have an Individual Voluntary Arrangement or are applying for one

You have had a Debt Relief Order (see next section) in the last six years

You have been given a Debt Relief Restriction Order or Undertaking

Qualifying debts

These include, credit cards, overdrafts, loans, catalogues, in-store credit agreements, rent, rates, utility and phone bills, benefit overpayments, money owed to HM Revenue & Customs and more. They don’t include child support and maintenance, court fines and confiscation orders or student loans. For a full list of exclusions, check with a debt charity.

How you apply for a debt relief order

You can only apply for a Debt Relief Order through an approved person known as an intermediary. Most free debt advice providers have approved intermediaries who can help you. Once you have applied and paid the fee, and if you are eligible, an Official Receiver will grant the Debt Relief Order.Talk to a free debt advice service before deciding if this option is for you.

(iv) Bankruptcy

Bankruptcy is a way of dealing with debts that you cannot pay. While you are bankrupt, any assets that you have might be used to pay off your debts. After a period of time (usually one year), most of your outstanding debts are written off and you can make a fresh start.

Applying for bankruptcy

To apply for bankruptcy in Northern Ireland, you will need to fill out a Petition, where you list the reasons why you are applying for bankruptcy, and a Statement of Affairs, where you list all of your assets and debts.

Going to court and fees

There are three fees that you will have to pay when you go to Court.

The deposit of £525 towards the costs of administering your bankruptcy, paid to the Department of Enterprise, Trade and Investment.

The court fee of £115. In some circumstances the court may waive this fee; for example, if you are on certain benefits.

The fee payable to a solicitor before whom you swear the contents of your statement of affairs. You should expect to pay around £7 for this service.

The Court will then usually do one of the following.

Issue a bankruptcy order.

Request further information before making a decision.

Reject your petition, and possibly suggest an alternative to bankruptcy.

Once you are declared bankrupt

Once you have been declared bankrupt, you must hand over any assets and your financial share of your home to an appointed trustee. This person will either be an Official Receiver or an Insolvency Practitioner. Who manages it will depend on how large your assets are. Your creditors have to make a formal claim to the trustee for the money they are owed. You can’t make direct payments to them and they can’t ask you for payments.

Who is bankruptcy suitable for?

If you have no real way of paying off your debts then bankruptcy could be a suitable option. However, don’t make this decision alone. Talk to a free debt advice agency first.

Offer in full or final settlement

If you have a lump sum that would cover part of your debts, you could ask your creditors whether they would accept a part payment and allow you to write the rest off. Alternatively, they may allow you to make monthly payments for an agreed period after which the balance is written off.

(v) Write-offs

In exceptional circumstances where you have no available income, savings or assets – and you can show your creditors that your circumstances are unlikely to improve in future (for example, if you are severely ill) – it may be possible to ask your creditors to write off your debts. Talk to a debt advice charity to find out if this solution could be suitable for you.

More help if you’re struggling:

If you’re struggling financially, other help may be at hand to help with day-to-day expenses or other outgoings. There are many benefits available to people on low incomes, but the benefits system is changing so make sure you know what you’re entitled to.

Crowdfunding, investing in small businesses in the hope of a return, is terribly exciting. From investors in Camden Town Brewery cashing in upon its multi-million pound sale to brewer AB InBev, or eCar’s similar sale to Europcar. Especially with today’s painfully low interest rates of just 0.25%, where there’s literally no point waiting for your savings to grow in a bank account, people are actively looking for better places to put their savings. But if you invest in crowdfunding, especially on the three major crowdfunding platforms Seedrs, Crowdcube, and SyndicateRoom, what are your returns going to be?

Rolling the dice

It’s not an easy question to answer, the crowdfunding industry has been fairly opaque in the past. There’s also the darker side of equity crowdfunding, where failure rates are disguised and high profile businesses go under, taking ordinary investor’s money along with them. Like gambling, there’s always a large risk.

Data brings hope

But that began to change earlier this month, when Seedrs and SyndicateRoom began releasing detailed figures about the success of their portfolios. There are some caveats*, but we’ll deal with them in a minute. So, if you’re trying to decide between Seedrs, CrowdCube and Syndicate room, what could your returns be?

Seedrs

Seedrs became the first equity crowdfunding platform to publish a full portfolio update this month, with some of its figures audited by the accountants at EY. Of the 253 businesses that Seedrs has helped raise funds through its platform up to the end of 2015, combined they have grown in value by an average of 14.44% per year. So, if you had invested in every business listed since they started, you’d be sitting on a nice return. But that’s before you include the tax benefits available to investors in small businesses. We won’t go into the details but if you were able to claim the full tax relief of the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), your annualised returns could be as high as 41.87%. Not bad at all.

SyndicateRoom

SyndicateRoom quickly followed Seedrs announcement with its own smaller set of figuresthis month, which were not audited by any external party. According to these numbers SyndicateRoom’s entire portfolio has increased in value by 35% in aggregate since 2013 when it launched up to the end of 2015. Again, when tax relief is factored into the equation, the value for an investor who has backed SyndicateRoom’s entire portfolio will have increased by some 109% over that same period. Once crucial difference to note with SyndicateRoom is that some of its companies are larger public groups. The benefit here is that some investors may be able to get the cash back from their investments.

Crowdcube

By many metrics Crowdcube is Britain’s largest equity crowdfunding platform, and is certainly the one you’ve probably either heard of or seen advertised around. Unfortunately while Crowdcube has been very public about the number and value of the fundraisings it has facilitated, the company has yet to release a portfolio update for investors in the same way that its peers have.

*Caveats

All of this data is great, but there are three major caveats to bear in mind when looking at the figures and when considering crowdfunding as an investment. 1. The portfolio problem All of the figures being published here are based on someone investing in every single company on either Seedrs of SyndicateRoom, which in reality no one has done.

Seedrs suggests that people should be looking at spreading their investments across at least 20 separate crowdfunding campaigns, and even then there’s no guarantee of success. 2. Mind the exit Most of these companies are private businesses, and many will remain that way indefinitely. Your investments may very well grow in value, but that doesn’t mean you’ll ever see a penny back from them. 3.

The problem with past performance Finally all of these figures listed are based on the last three years of performance, which give no indication of future performance. So what does this all mean? Crowdfunding remains a highly speculative, highly risky investment. As we’ve written before, chances are you’ll end up loosing the vast majority of money you invest. If you have decided to put some of your savings into crowdfunding, at the moment SyndicateRoom appears to have the best performance on paper, along with the added benefit of some of its investments being public companies. But, as always, buyer beware.

Financial mis-selling – what to do if you’re affected

If your bank or another financial company sold you a product that wasn’t suitable for you, you may get compensation if you make a complaint. If you are unhappy with your firm’s response, the Financial Ombudsman Service or Pensions Ombudsman may accept and investigate your complaint for free. i) What counts as financial mis-selling? ii) Examples of financial mis-selling iii) If you’ve been mis-sold a financial product iv) If the firm that advised you has gone out of business

(1) What counts as financial mis-selling?

Mis-selling means that you were given unsuitable advice, the risks were not explained to you or you were not given the information you needed, and ended up with a product that isn’t right for you. As a non-financial example, say you were looking to buy a computer. You told the shop assistant that you planned to watch DVDs on it, and they recommended a model. Then you took it home, and found that it didn’t have a DVD drive. There’s nothing wrong with the computer itself – it’s not faulty – but it’s not what you needed. The computer was mis-sold to you. It’s just the same when you’re sold a financial product. The person who advises you to buy must recommend something suitable for your needs, and explain properly what it can and can’t do. They should make sure you know the risks. If they don’t do this, you may be able to claim compensation.

Treating customers fairly Financial services must be sold to you in a manner that is “fair, clear and not misleading”. Source: Financial Conduct Authority (FCA)

Key things to remember about financial mis-selling:

It’s not about whether you lost money. Even if you didn’t lose out, if the product isn’t right for you – perhaps it’s a riskier investment than you wanted – you can still make a complaint about financial mis-selling.

You can’t complain just because an investment performed badly. Some investments are risky, and if you take a gamble you have to accept that you might lose. But you can complain if you weren’t told about the risk.

(2) Examples of financial mis-selling

Payment protection insurance (PPI) mis-selling examples

Some ways you might have been mis-sold PPI:

You were unemployed or retired when you were sold the PPI.

You were told that PPI was compulsory and that you had to take it out.

You were pressured into buying the PPI.

Nobody fully explained the terms and conditions (small print).

You weren’t told the rules about pre-existing medical conditions.

You weren’t told that you could buy PPI from another company.

You weren’t told about exclusions to the policy.

Nobody asked if you had any other insurance which could cover the loan.

Mis-sold mortgage examples (including endowments)

Some ways you might have been mis-sold a mortgage:

You were advised to self-certify (borrow money without proving your income) or overstate your income in order to borrow more.

Your mortgage end date is after your retirement date.

You were advised to switch lenders and weren’t told about the fees and penalties.

You were given a fixed-rate mortgage and told to remortgage to a better deal later on, then incurred penalties for leaving the fixed rate early.

You weren’t told about the commission the adviser would receive from the lender.

Mis-sold investment examples:

Some ways you might have been mis-sold your investment:

You weren’t told how your money would be invested.

You weren’t told about the risks involved.

The product didn’t suit your needs or attitude to risk that you discussed with the adviser.

(3) If you’ve been mis-sold a financial product

Act quickly

Be Aware If you want to complain to the Financial Ombudsman Service there is a time limit of six years from when you were sold the product, or three years from when you noticed (or ought reasonably to have become aware) something was wrong – whichever is later.

You can find out more on the Financial Ombudsman Service website If you want to complain to the Pensions Ombudsman the time limit is three years from the event complained about, or three years from when you became aware (or ought to have become aware) of the event complained of. There are some very limited circumstances where the Pensions Ombudsman can investigate complaints that were not brought within the three-year period. However, before going to the ombudsman services you need to complain to your provider. Read on to understand the process you need to follow.

Step 1 – Gather all the information you need

You don’t have to find concrete proof, but you do need to explain your problem.

Gather all the relevant information and any written proof.

Be clear and concise and stick to the facts.

Step 2 – Complain to your provider or adviser

Ask for a copy of the firm’s internal complaints process – all firms should have one. It’ll tell you who to contact. Often you can find this on the firm’s website.

The firm has eight weeks to respond. If they don’t get back to you, you can go straight to the ombudsman service.

If you are unhappy with the firm’s final response, you have six months to take your complaint to the Financial Ombudsman Service and, in the case of the Pensions Ombudsman, three years from the event complained about or within three years of becoming aware of the event.

If the firm has gone out of business, you might still be able to get compensation – see the section further down the page.

Step 3 – Ask an ombudsman service to investigate

Time limits If you are unhappy with the response to your complaint you must contact the Financial Ombudsman Service within six months of receiving the firm’s final response. The time limits for the Pensions Ombudsman are longer.

If you’re not happy with the firm’s response to your complaint, raise the matter with the Financial Ombudsman Service or the Pensions Ombudsman for pension-related issues. You might find it worth checking with the Pensions Advisory Service first for pension-related matters.

An ombudsman service is independent, and will investigate your complaint for free.

You have to have followed the firm’s official complaints procedure before you can use an ombudsman.

Usually you’d go to the ombudsman if the firm hasn’t given you a final decision within eight weeks – but if they’re helpful and keep you informed, you might want to wait a little longer. If your complaint relates to something that happened years earlier, it could take some time to find the relevant files and speak to the right people about it. Generally the ombudsman’s decision is where things end, but if you’re still unhappy, as a last resort you may be able to take the matter to court. Think carefully before you do. Court cases are expensive, and there’s no guarantee you’ll win.

(4) If the firm that advised you has gone out of business

Even if the firm has gone bust and can’t afford to pay you anything, you might be able to get compensation from the Financial Services Compensation Scheme.

If you’re in negative equity it means you owe more on your mortgage or other secured borrowings than your home is currently worth. There is no easy solution to the problem of negative equity, but being in this position does not automatically mean that your home will be repossessed if you fall into arrears.

Repayment options for borrowers in negative equity

Your lender is likely to be a bit more cautious about options available for repayment of arrears. You will usually need to get the lender’s consent before you can sell the property if it’s in negative equity. You may not be able to sell your home without making a loss, but you should still be given a reasonable chance to repay your arrears and take advantage of any available benefit or government scheme.

You should seek specialist advice if you are in negative equity, as some options may have a less favourable outcome for you than others. If you voluntarily surrender the property by handing in the keys to your lender you will still owe your lender money because your home is now worth less than your remaining mortgage. Remortgaging can be difficult when there is no equity in your home. If you are in arrears and are facing negative equity, you should speak to a specialist debt adviser.

Selling the property

You can sell your home in the normal way if you have enough savings to pay off the negative equity and your selling costs . If you don’t have enough savings to cover this, it may be better to wait until property prices rise and your home increases in value. You usually need to get your lender’s permission before selling. You may also need permission from other creditors if you have secured loans. It may be easier to get this if you have realistic plans to pay off everything you owe. You will still be responsible for your monthly payments until the sale is completed. Selling may take a long time, so the amount you owe could increase considerably. You may also have to pay rent when you move somewhere else. Only let your lender sell your home as a last resort, there is usually a better option. Selling it yourself on the open market may mean you are able to sell at a higher price. Many lenders sell repossessed properties at auction where selling prices can be very low.

After the sale

You can still end up owing your lender money if you sell your home when you have negative equity. You must pay back everything you originally borrowed even if the money from the sale doesn’t cover the cost of your mortgage. Your lender can still take legal action against you after your home has been sold. This will affect your credit rating and will make it more difficult to get a mortgage in the future.

Hiring a negative equity company to help you sell

There are a number of companies which will offer to negotiate with your lender to allow you to sell the property and write off some of what you owe. These companies charge a fee for their services. In many cases it’s possible to negotiate this kind of deal yourself without having to pay any middlemen.

The wave of disruptions in the financial sector gained strength after the global financial crisis of 2008-09. While the heavy losses forced banks to become stricter about loan disbursements, the chaos and fragility in the system caused dissatisfaction with commercial banks among borrowers. According to Reuters, “twenty of the world’s biggest banks have paid more than $235 billion in fines and compensation in the seven years period (2008-2015) for a litany of misdeeds, ranging from fines for manipulation of currency and interest rate markets to compensation to customers who were wrongly sold mortgages in the United States or insurance products in Britain.”

The time consuming, lengthy and rigid procedures of ‘exposed’ banks made way for more innovative lending and borrowing options. The result was the rise of peer-to-peer (P2P) or marketplace lending which offer simplified and quick procedures, quick lending decisions and better interest rate deals for borrowers as well as lenders, with more transparency. oday, P2P platforms are among the fastest growing segment in the financial services space.

Some of the well-known marketplaces in the U.S. and Europe are LendingClub Corporation (LC), Zopa, Prosper Marketplace, Upstart, Funding Circle, CircleBack Lending, Peerform, Pave, Daric, Borrowers First, SoFi, Ratesetter and Auxmoney. Market Size & Growth Projections The market for alternate finance gained popularity in recent years. A finding by Transparency Market Research suggests that “the opportunity in the global peer-to-peer market will be worth $897.85 billion by the year 2024, from $26.16 billion in 2015. The market is anticipated to rise at a whopping CAGR [Compound Annual Growth Rate] of 48.2% between 2016 and 2024.”

While Research and Markets estimates the global P2P lending market to grow at a CAGR of 53.06% during the five year period between 2016 and 2020. Morgan Stanley in a report in 2015 predicted that such marketplace lending would command $150 billion to $490 billion globally by 2020. While the P2P lending in the U.S. is still in its infancy, it is growing at a faster pace in comparison to other financial services.

China’s peer-to-peer lending market is the largest and the most dynamic in the world with more than 4,000 providers operating in the market today compared to just 50 providers at the end of 2011. Although there isn’t much insight into verifiable numbers in China’s market, in June, regulators revealed a figure of about $93.43 billion. Europe’s alternative finance market is a mix of crowdfunding, P2P lending and other activities, grew by 92% in 2015. A very recent report by Cambridge in collaboration with KPMG points out that P2P consumer lending at €366 million volume in 2015 is the largest market segment of alternate finance while P2P business lending at €212 million ranks second in the segment.

Challenges & Regulations While the growth projections for peer-to-peer lending are promising, the journey to that destination isn’t easy. One of the major challenges is managing fraudulent activities and malpractices as they result in loss of investor confidence and trust. These can only be tapped when there are certain regulations guiding these platforms.

In Europe, several countries have introduced changes to alternative finance regulations as an attempt to regulate the activities of these emerging platforms. In the United Kingdom, Financial Conduct Authority (FCA) regulates loan-based and investment-based crowdfunding platforms. In fact, the FCA is actively scrutinizing lending platforms amid concerns of wrong advertising and mis-selling. Investors in such platforms do not have access to Financial Services Compensation Schemes available under regular bank saving accounts.

In Australia, providers of marketplace lending products and related services need to hold an Australian financial services license and a credit license They also need to comply with National Consumer Credit Protection Act (for consumer loans) or Australian Securities and Investments Commission Act 2001 (ASIC Act) for other loans. Meanwhile, in the U.S., such platforms need to be in compliance with SEC regulations and further have to be in sync with the respective state laws.

In India, the Reserve Bank of India issued a consultation paper in April where it proposed to bring P2P lending platforms under the purview by defining them as NBFCs. China has been liberal towards internet based lending in the initial years, as a result of which, such platforms mushroomed, many of which indulged in fraudulent schemes and activities.

The first major step by the Chinese government to build a policy framework was initiated in July 2015 as a guidance policy which looked to encourage the development of such platforms amid moderately loose regulatory policies. Realizing that trouble was brewing, in August 2016, regulators in China issued an aggressive set of measures to restrain the spread of problematic online lending platforms while ensuring that the sector is cleaned up by making such firms exit. Statistics by CRBC showed that out of the 4,127 P2P lending platforms (end of June 2016), 1,778 were suffering from problems such as poor management, capital constraints or were a Ponzi scheme.

Final Word While the peer-to-peer (P2P) platforms continue to face the risk of default, fraudulent practices or borrower’s turning to banks, the growth prospects of this segment remain strong, especially in times when the banking sector continues to struggle with lingering damages. Thus, a well-regulated and transparent peer-to-peer platforms offer great opportunities as an alternative investment for loan providers as well as for borrowers – both in retail and small businesses.

When devising a financial plan, whatever its purpose may be, there are some common mistakes to avoid when it comes to executing the perfect plan.

Not having quantifiable, relevant objectives

Often people don’t have specific objectives for their investments, other than capital growth. Without establishing your objectives, how can you judge success? Elements to consider when outlining your objectives are: the time period during which you are making your assessment, your benchmark, and whether this benchmark has any relevance in your life.

Inheritance tax sledgehammer

You could save extremely carefully, be prudent with your expenditure, manage your investments and keep income and capital gains tax to a minimum. You could then find that, after all of this, HMRC takes up to 40% of your total assets once you have passed away. In this case, the family of the person who achieved 5% per year growth on their portfolio throughout their lifetime would receive the equivalent of just 3% per year growth net of inheritance tax. Careful planning can allow growth whilst mitigating the inheritance tax liability significantly and, if started early enough, in some cases it can be mitigated entirely.

Not having a plan

We can generally anticipate many important things that we are going to do or experience in our future. It’s possible to create a plan that allows your finances to work around your life and aspirations. If you don’t have a plan, you may not have money when needed, or you may end up at age 90 with assets of £2 million. This second scenario may sound ideal, but it could be viewed as £2 million of living that has been missed out on, or result in an £800,000 inheritance tax liability as mentioned above.

Not using allowances

The UK tax regime is very generous to investors. For portfolios under £10 million, it’s possible to generate total returns of up to 8% that are subject to between zero and 8% tax. This isn’t via aggressive tax avoidance schemes (like moving money to Panama!) but through careful planning, usingISA, pension, capital gains and income tax allowances and structuring a portfolio in the right way.

Not using a partner’s allowance

Assets can often be transferred between spouses tax free, meaning the above allowances can be employed for both partners, potentially doubling the tax saving.

Right egg, wrong basket

To take advantage of this generous tax regime, it’s important to consider the type of return your investments will generate and how they will be taxed. Placing income-generating investments like corporate bonds in your ISA or pension means you may avoid paying any income tax. Investments like equities, which generate capital growth, can be held directly in an “unwrapped” account, allowing you to make use of your capital gains allowance each year.

Driving while looking in the rear view mirror

It’s tempting to invest in an oil exploration company having seen a 100% return in a month. However, as the investment cliché goes, past performance is no indication of future returns. It’s human nature to believe that the future will be an extrapolation of the past and present. With investments it probably won’t. Markets are volatile. What goes up this month may go down the next and vice versa.

More eggs in baskets

Volatility isn’t the only type of risk, it’s important to spread your investments. Often people try to do this by investing through a number of different advisers or companies but this doesn’t necessarily spread risk. If all of those advisers or companies are largely invested in blue-chip UK companies, then no diversification has been achieved. It’s important to look “under the bonnet” and to understand where the money is actually invested.

Comparing apples with oranges

When I first meet with people, they are often concerned that part of their portfolio is performing well, while other areas are doing less well. On closer inspection you often find that, actually, performance has been very similar but the reporting periods are different. As already mentioned, markets can be volatile. When comparing portfolio performance to an alternative fund or benchmark, it’s vital to use exactly the same dates. A single day difference could mean a 3% change in price, meaning any comparison is meaningless.

Comparing apples with pears

Comparing investments purely based on returns can be misleading. An investment into a mining company could make you 100% return in a month compared to a couple of per cent for a diversified portfolio, but the risk associated with the individual share is astronomical in comparison.

Paying too much (or too little)

When it comes to fee paying, it’s important to strike the right balance. If you are paying too much, this can be a drag on asset performance. However, paying too little can also have a negative impact on your assets as your wealth manager could be underperforming – after all, it is easy to find someone that can do a worse job for less money. Don’t just look at your costs in isolation as this is meaningless, consider how your wealth manager is working for you.

Not knowing what you’re paying

Although it isn’t sensible to dwell on your costs alone, it is important to have an awareness of how much you are paying – believe me, most don’t! Transparency of pricing within the industry has improved but still has some way to go. A very low headline figure can often hide a raft of underlying charges for transactions or administration. These can make the total cost much higher (sometimes several times higher!) than the price quoted initially.

My business is my pension

As we all know, pension planning is crucial as we can no longer rely on state provisions alone as a source of retirement funding. If talking about pensions with business owners, they will often say, “why would I need to look at other pension plans when my business is my pension?”. Quite simply, because it isn’t advisable to have all your eggs in one basket. If your business fails, the pension pot will be non-existent. Consider the different options such as income drawdown for flexibility, an annuity for security and pension freedoms (which does what it says on the tin). Chances are by exploring other options, you will find a route that works much more effectively.

My house is my pension

You have to live somewhere, so what’s the need to look at an alternative pension plan when you’ve got it all tied up in your property? This can be answered by three questions:

What if I need to downsize in the future?

What if I decide to downsize but I can’t sell – how will I access my money?

What if I can sell, but the value of my property falls?

Although the housing market has been buoyant, it doesn’t mean it will stay that way as recent data indicates. Remember, past returns aren’t an indicator of the future!

Buy (or gradually accumulate) and hold

Often, when you gradually accumulate, risks can be overlooked. For instance, people with £100,000 or more in company shares accumulated through a save as you earn scheme may not realise how much they are actually investing in one place if they are parting with £500 a month over three to five years. To combat this, the key question to ask is: if you had £100,000 cash, would you risk investing that big of a lump sum all at once?

Lifetime of money versus your lifetime

“I’m 75, I may only be around for another five years – I should put all my money in cash.” This may be right, but if you are unlikely to spend it and your children are likely to invest post inheritance, you may end up with it sat in cash for 10 or 15 years for it to simply be reinvested. If you know you won’t be able to spend it, don’t miss out on those last years of growth and income.

Fear…

With such market volatility, the question on every investor’s lips is always “what if markets fall?”. When, inevitably, markets do take a dip, the temptation can be to pull out. However, if you are investing for the long term, there is potential you might still receive good returns, so don’t act hastily.

…and greed

Alternatively, greed can dominate investors thoughts whilst they constantly ask themselves “what if I miss out on returns?” or “what if I could make more?”. Greed leads to inappropriate risk. To avoid this, it’s crucial to have a plan in place.

Inappropriate risk

Knowing how much money you want to gain – whether it’s to live off after retirement or to reinvest elsewhere – is essential to financial planning. With set targets comes appropriate risk – why make high-risk investments, targeting 10% growth, when you know you only need to target 3% to do everything you want to and still have money to spare?

Holding until it recovers

It may be tempting to hold onto a fund until it recovers. However, this decision needs to be caveated. If shares drop, what’s to say they won’t drop further? A question you should be asking yourself is, “would I buy it now if I had the cash?”. Don’t automatically hold on without giving it further thought.

Listening to wild speculation

Of course, the way in which a lot of financial developments are heard is through the media. In the wake of Brexit, tabloids are quick to sensationalise every development in the financial landscape. However, no matter how tempting, it is important not to take immediate actions as a direct result of what you hear. Speak to your financial adviser first, then act. credited to: http://www.iii.co.uk/articles/354562/21-common-mistakes-financial-planning%3A-part-one# http://www.iii.co.uk/articles/354949/21-common-mistakes-financial-planning%3A-part-two

Around half a million public sector workers can massively boost their state pensions. Here’s how: Put £700 in and get £5,000 out. That’s the deal potentially on offer to thousands of current and former public sector workers who can top up their state pension at “bargain basement” rates, according to former pensions minister Steve Webb.

He estimates that more than 500,000 older people – including many current and newly retired teachers, nurses, civil servants and local government workers – could benefit over the next five years, as well as thousands of private sector workers. This particularly relates to those entitled to draw their occupational pension at 60, but who won’t receive a state pension until they are 65 or 66. In simple terms, they can potentially cash in by paying heavily subsidised voluntary national insurance contributions for the years between the date when they retire and when they reach state pension age, says Webb, who is now director of policy at life and pensions company Royal London.

Of course, you have to have money to be able to afford it. And not everyone will warm to the idea of using today’s cash to buy an income for later when they do not know how long they might live. The deal is linked to the introduction of the flat-rate state pension for everyone reaching state pension age on or after 6 April 2016.

The full amount, currently £155.65 a week, is paid to those who have made 35 “qualifying years” of national insurance contributions (NICs). Paying voluntary NICs is an attractive proposition because the rate is heavily subsidised by the government But the vast majority of people who belong(ed) to a public sector pension generally paid national insurance at a lower rate because their scheme was “contracted out”.

To reflect this, they will have a deduction made from their state pension – which means that most won’t receive the full amount in the early years. But the good news is that by paying voluntary or “class 3” NICs they can make up some of the shortfall. Webb says this is “an attractive proposition” because the rate is heavily subsidised by the government. For example, a single year of contributions can be bought for a lump sum of around £733.

This will boost someone’s state pension entitlement by around £230 a year for the rest of their life. That £733 would generate a pretty impressive £4,600 over the course of a 20-year retirement. Someone who bought five “missing” years could receive an extra £23,000 for an outlay of less than £4,000.

This is particularly relevant for many longer-serving teachers, nurses and civil servants etc who are entitled to draw their occupational pension at 60, then face a gap of five or six years before they can receive their state pension. For example, under the rules of the teachers’ pension scheme, those who entered pensionable service before 2007 have a final salary “normal pension age” of 60, while for more recent arrivals it is 65. Similarly, most members of the “1995 section” of the NHS scheme have a normal pension age of 60 (some nurses, midwives and others have special terms which mean theirs is 55), while members of the “2008 section” must wait until 65. Likewise, members of the classic, classic plus and premium part of the civil service scheme typically have a normal pension age of 60, but for those who joined on or after 30 July 2007 it is typically 65-plus.

The 4.6 million member-strong local government pension scheme’s normal pension age is higher at 65, but it is thought that most people take early retirement. Webb explains that if someone in this situation retires at 60, they would not normally pay any further NICs between retirement and state pension age, but they can pay voluntary contributions for each of those years. Incidentally, this scheme is separate to the one that Guardian Money wrote about in August that lets older people buy extra state pension on what experts say are favourable terms.

The way the new top-up scheme works is best illustrated with an example, so here is one very closely based on a real person. Georgina was a teacher and retired on her 60th birthday on 6 April, which means she gets the new flat-rate state pension. She can draw her teacher’s pension at 60 but won’t get her state pension until she is 66.

She doesn’t intend to work again, and so each of the years from 2016-17 to 2021-22 will have a gap in her national insurance record. Because she was a member of the teachers’ scheme for most of her working life, Georgina has only built up a small Serps pension of £10 a week on top of her state pension entitlement of £119.30 (she hasn’t made the full 35 years of contributions), making a total of £129.30.

Georgina decides she can afford to set aside a lump sum of £733, which will pay for one year of voluntary NICs. As a result her starting amount is increased by 1/35 of the full flat-rate pension, or £4.45 a week, taking her total state pension to £133.75. The Office for National Statistics estimates that a 60-year-old woman will on average live until she is 88, which in Georgina’s case would mean receiving a state pension for 22 years. An extra £4.45 a week, multiplied by 52 weeks, multiplied by 22 years, means an extra £5,090 – for a lump sum of £733.

And if Georgina has more spare cash she can potentially repeat the exercise for each gap in her NI record. Royal London estimates that well in excess of 500,000 public sector workers could benefit over the next five years, as well as thousands of former private sector workers whose company pension scheme allowed them to draw a pension before state pension age. Jamie Jenkins, head of pensions strategy at Standard Life, says it’s a “very sensible thing for some people to do”, but he adds that there is “a very big lack of awareness” of this option. Credited to: https://www.theguardian.com/money/2016/oct/08/how-to-boost-state-pension