The massive growth in online platforms connecting retail investors to a variety of different investment opportunities, each offering different levels of risk and return, has the potential to help people take a much more active role in how their money is managed.

Looking ahead, more people will decide to funnel part of their investments and savings through alternative finance across a variety of platforms with third party platforms emerging to help them manage their personal investment portfolio.

Greater access for investors and small minimum investments

The growth of online alternative finance providers has given ordinary people access to a wealth of new investment opportunities that were previously unattainable, and the means to invest in them in an efficient manner. These platforms have harnessed technology to allow investors manage investments themselves rather than relying on larger financial institutions for this.

Firstly, they give investors direct access to investment opportunities. Open platforms make it easy for anyone to peruse numerous and diverse opportunities, in different sectors, regions or asset types, and all with little effort and from the comfort of their home or office. Secondly, these sites allow investors to spread their investments quite easily to protect them against risk. Low minimum investment amounts on sites and the investments they offer, often as low as £10, mean a strong level of diversification can be achieved with even a few hundred pounds to invest.

The variety of opportunities is growing rapidly

The choice of investment products is constantly expanding too. A UK investor could decide to put some of their funds into SME debt through FundingCircle or AssetzCapital or lend to other people via Zopa and RateSetter. They can apportion some money to buy-to-let or commercial property investment with LandBay or PropertyCrowd or to renewable energy projects with Abundance Generation or Trillion Fund, these latter two also presenting the opportunity to have a social or environmental impact with their investments.

At the same time, if an investor has a higher risk appetite they could put some of their money into startup equity through Seedrs or CrowdBnk or mini-bonds through Crowdcube. And for those seeking to invest in community assets there is the option to back a community shares offering on sites like MicroGenius and Crowdfunder. And the options don’t stop there, sites are constantly exploring which potential investment products and assets can be funded through an online crowd-based model.

These providers have done a fantastic job at connecting individuals with this breadth of investment opportunities and providing them with an easy way of spreading your money across a wide variety of platforms and products. Yet barriers remain to be overcome before most individuals would consider managing significant chunks of their money through these platforms. Principal of these are the issues of around investor education and the effort required to manage these investments.

Educating would-be investors

While the growth in online alternative finance platforms has provided a wealth of investment opportunities there still remains the challenge of educating people about their existence, how they differ and how to use them. Recent research has shown that the majority of people are still unaware of even one form of crowdfunding or peer-to-peer lending and that the majority of those who had heard of them had never used them. There still remains a significant challenges  for the industry in increasing awareness and getting people to actually put some money through these models. Give the differing risk levels of the investments on offer, most individuals will also want the industry to be able to provide clear and reliable information on how well the different opportunities perform in the longer term.

The biggest challenge however is educating individuals on how to use these models. Ensuring that they understand the relative risks involved in the different types of assets and financial instruments will  be of enormous importance. As will educating potential investors about the importance of diversification and creating a balanced portfolio. Retail investors will not have the training and experience to pick deals as well as professionals would, yet a combination of relying on diligence done by platforms, achieving a high level of diversification and avoiding larger fees charged by investment managers may do comparably well on their own.

One aspect however, that is still missing is the ability for investors to hedge or insure themselves against specific crowdfunding or P2P investments going wrong. In time, providers may arise to provide these facilities too. 

The changing nature of intermediation

Another barrier to people taking a more active role in managing their own investments is the time that would be required to do so. Diversification is extremely important for investors, so they would need to use multiple sites and make multiple investments on each site. In reality, few may have the appetite to do this themselves.

In response to this, the last year or so has seen the emergence of third parties to help investors put their capital to work across a number of different sites. While extreme versions of this are the funds set up to do investing for individuals, more light touch intermediaries have also popped up that aim to take the hassle out of managing an investment portfolio through a host of alternative finance sites. Services like those provided by startups such as 4thWay and InvestUp allow users to browse opportunities from a number of different sites and make and manage those investments through one central platform. While consolidation is likely in the currently highly fragmented market, more light touch intermediation like this has the potential to make taking a more active role in managing a portfolio of investments a reality.

What could the future look like?

We are still quite a bit away from the average retail investor thinking of themselves as a fund manager moving their money around between different asset classes and investments, but a world where it is possible is quickly becoming a reality. In the meantime these sites may lead to less intermediation as current financial intermediaries begin to invest through them and we may also see the growth of advisory services to help guide investors with using these sites.  

• The growth in the number of third parties helping individuals make and manage investments as more opportunities to invest through crowdfunding and P2P sites emerge

• As investors gain more experience or using sites and attain a greater understanding of the risks involved the begin to move small parts of their capital away from traditional fund managers to manage it themselves.