Zopa to target its 'social lending' at IFAs

The adviser market is being targeted by Zopa in a new campaign designed to promote awareness among IFAs of ‘social lending’.

Zopa, which stands for Zone of Possible Agreement, was set up in March 2005 and is an online marketplace allowing people to lend and borrow money between themselves to get a better deal and by cutting out the banks.

The firm says as the ‘social lending’ market is worth around £800bn advisers are missing a significant opportunity, so the campaign, in conjunction with Synaptic Systems, is designed to attract advisers by offering IFAs who introduce a 'lender' to Zopa 0.2% commission of all the money lent by that client, along with a minimum £50 commission payment for each client.

As an added incentive, the company claims clients get a far better rate of investment return by using Zopa instead of cash and savings accounts, with average returns of between 6.75% and 14% per year.

The firm argues this is only marginally more risky than bank accounts and has significantly less risk than equity investments.

In addition, it points out the lenders’ money is well-protected as the company uses all the safety measures banks use, while borrowers are identity-checked, credit scored and risk-assessed, and anybody lending £500 or more has their money spread across at least 50 borrowers.

James Alexander, chief executive and co-founder of Zopa, says with banks coming under heavy fire for their excessive profits, and the possible implications of the Office of Fair Trading’s (OFT's) current review of their charges, there has never been a better time to offer the consumer a way to cut out the banks.

“For IFAs, this is a fabulous chance to help clients with a previously untapped arena – cash deposits," says Alexander.

"Although the commission earnings may not be as attractive as those from more mainstream investment products, the regulatory burden for these higher paying products is much, much greater than on Zopa lending.”

Zopa says possible ways for IFAs to incorporate ‘social lending’ into their client’s portfolio include using it as a diversification tool, or making it part of a self-invested personal pension (Sipp) where the Sipp acts as the lender.

Meanwhile, Nigel Ogram, product manager at Synaptic Systems, says the campaign is a “revolutionary development” as it is encouraging advice in an area of financial planning which has traditionally been neglected by IFAs.

He says: “Although a seemingly straightforward concept, this will open up a whole new asset class to advisers, on products which normally offer no opportunity for earnings when sourced from banks or building societies.”

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email nyree.stewart@incisivemedia.com