If you want peer-to-peer lending to hit a mainstream audience, it’s important for the existing massive network of financial advisors to have access to the stream.
It’s actually surprising more hasn’t already been done to reach out to this influential network.
Bo Brustkern said NSR Invest was created to provide a gateway to peer-to-peer lending for financial advisors.
“As easy as it is for individuals to invest in P2P, whether directly through sites such as Lending Club, or through NSR Invest, it is hard for financial advisors to access the P2P market,” Mr. Brustkern explained.
NSR Invest will be featured at FinFair 2015. Taking place on July 29 in Manhattan, FinFair brings together the Wall Street establishment and today’s financial innovators.
NSR Invest’s solution is to provide an end-to-end solution to allow financial advisors to enter the market.
The benefit, he added, is billions of dollars can be freed up and deployed into more attractive options like peer-to-peer lending.
Advisors need to have complete visibility into a platform before they channel client capital into an option, and that transparency is not present with many platforms and sites, Mr.Brustkern explained.
“Our system provides that transparency.”
Mr. Brustkern said NSR Invest is a platform on which investment advisors can build their business and product companies can build the plumbing required to operate in the marketplace.
As peer-to-peer lending becomes more popular, institutional investors are taking notice and deploying increasing amounts of capital in the space, movement which has helped the marketplace grow, Mr. Brustkern said.
So much so that the marketplace is now inundated with interest and capital from institutions to the point of oversubscription.
NSR Invest’s key position is to enable and protect the peer investor so they always have a place in the sphere, Mr. Brustkern said.
The diversification these investors bring not only benefits them but also the sites such as Prosper and Lending Club where they invest, Mr. Bruskern explained.
“Lending Club, Prosper and others are keen to have a diversified investor base, so we are natural partners.”
That is where NSR Invest’s “plumbing” for financial advisors comes in.
“By solving problems for the financial advisors, we provide individuals intelligent access to the P2P investment world,” Mr. Brustkern said.
Given the novelty of marketplace lending in a sector not known for change, a big part of NSR Invest’s job is to educate advisors and investors, a process Mr. Brustkern admits is “never-ending.”
“Financial advisors are purposefully and rightly risk averse,” Mr. Brustkern noted. “Their greatest fear is losing clients’ money.”
Conference appearances, interviews and newsletters are key aspects of NSR Invest’s strategy.
Part of the education is informing advisors in particular why investing in peer-to peer lending is very safe, especially with NSR’s intelligence layer, Mr. Brustkern said.
“We are talking about a conversation that begins with ‘credit is risky and scary’ and ends with it being a great alternative that will add stability and resiliency to a portfolio.”
Mr. Brustkern is excited about the role data science can play in the marketplace, saying it is a fundamental improvement in the way capital flows to individuals and small businesses. Technology can most definitely be used to more efficiently distribute capital between investors and borrowers. Service providers are using scaleable technology to deliver services in new ways not possible before, ways that are more transparent and efficient, he said. That makes it safer, a fact that placates financial advisors.
That transparency will come into play when the market hits its inevitable down cycle. Investors need to realize a few things about this, Mr. Brustkern said, with one being their indeed will be a down cycle.
“Many investors have blinders on about that,” he admitted.
Many things will happen when that time comes, Mr. Bruskern cautioned. Depending on its severity, there will be a higher unemployment rate. Returns are sensitive to that.
“If that spike is massive, there is no doubt there will be capital loss where returns go negative.”
That scenario poses a challenge to the NSR Invest team, Mr. Brustkern said. They need to balance producing strong returns today with resilient ones during and after the drop.
Is Mr. Brustkern worried about the resulting backlash when peer-to-peer lending has to weather its first market downturn?
“The onus is on us to communicate this isn’t an invincible asset class,” Mr. Brustkern explained. “There will be losses but they will be attractive in comparison to other parts of someone’s portfolio.”
“Our goal should we experience another 2008 is that we lose in the single digits.”
If you have $100 in peer-to-peer loans and $100 in bonds and lose $5 in the former and $40 in the latter, the first looks pretty good.
“That is where we have to manage expectations and work with clients to ensure they build smart portfolios.”
When considering the weighting you should give to peer-to peer loans in your portfolio, Mr. Brustkern said it is important to consider how much liquidity you require. For the time being it is wise to consider P2P investments as illiquid for three years, he advises.
That is actually one of the most attractive aspects of the space, Mr. Brustkern explained.
“They can be part of a buy and hold strategy which is one of the best things because they are not subject to price corrections.”
NSR Invest has been successful so far, Mr. Brustekrn said.
“The returns speak for themselves. The reason we are so passionate about this is there is a great social need and we are making a large impact on the economic fabric of our society by engaging in peer-to-peer lending.”