** Bondmason review updated February 20th 2017 **
Read my personal experiences investing through Bondmason. While technically not peer to peer lending, Bondmason is an interesting addition to a field of platforms vying for investor’s money and could be the future of peer to peer lending. The company offers a virtually hands-off investment option for people investors who don’t want to navigate the intricacies of choosing peer to peer lending platforms and loans. Bondmason advertises “effortless returns of 7%”. Despite some confusing legal structures, I’m a fan.
My February 2017 Allocation: Unchanged
My current annual rate of return: 8.66% (After fees but before tax)
* This opinion risk factors in loan types, interest returns, platform history, default numbers and my own investing experience.
The Bondmason Review – The Important Info:
- 100% hands-off investing
- Transparency and great communication
- Competitive returns
- Instant access up to £5,000 (depending on platform liquidity)
- Directors and staff have extensive financial sector experience
- Low defaults / extensive due diligence – only invests in platforms they have met with
- Company invests in every loan alongside investors
- Invests in loans normal lenders wouldn’t have access to
- Easy to use website
- Could be the future of peer to peer investing?
- Can’t see what platforms or individual investments your money is lent to
- £1,000 minimum to get started
- Can take up to a month for your deposit to be invested
- Reinvestment cash can sit idle waiting for deployment (aka cash drag)
- Lenders invest in receivables; could be higher risk
- Isn’t technically a peer to peer platform
- The company setup for wind-up proceedings could be a conflict of interest
- Lenders have no direct rights (security) over loans
- Not FCA regulated but senior team are FCA approved persons (* see note below)
Bondmason Review: My experiences so far….
On paper, Bondmason fills all the wants of a hands-off peer to peer lending investment vehicle. Decent returns, deposit and forget auto investments, and a financially experienced team of staff. After researching further, I decided to give Bondmason a try. It took a couple of weeks for my original deposit to be invested but after that, so far so good. Payments have been made on time and my account value is growing monthly.
What Is A Bondmason?
Bondmason is a UK based investment company that invests in receivables, invoices, peer to peer loans and debt. This is where things get a bit confusing but bear with me as I try to explain Bondmason’s set up. Remember it is very important to understand what you are investing in.
Bondmason has an outside / sister company named Bondmason Client Ltd (aka BCL) which on paper, is a client of Bondmason the platform. Bondmason’s team analyses loans on peer to peer platforms and buys loans that passes their quality criteria. Bondmason’s platform then facilitates the sales and purchase of these loans to lenders in the form of receivables. BCL collects loan payments and distributes them to Bondmason the platform, which then distributes payments to lenders. Bondmason also invests in each loan alongside lenders to keep interests aligned.
Here’s an illustration:
This set up means Bondmason could be considered more like an investment fund than a true peer to peer company.
How Can I Contact Bondmason?
UK Tel: 0203 126 6705
When Did They Launch?
Are They Regulated?
Not yet. Bondmason has applied for regulation through the Financial Conduct Authority. No timeline for approval has been given.
* Bondmason was one of the first companies accepted onto the FCA Innovation Hub program in April 2015. Their model was considered (i) innovative (ii) a positive contribution to financial services and (iii) current regulations didn’t fit their operating model. An FCA application for certain activities was submitted in December 2015, and is awaiting a final response. The senior team are FCA approved persons.
How Do I Sign Up / Any Offers?
Click here to sign up. When you sign up for an account and invest through my link, £15 will be lent through Kiva, the non profit website. Currently there are no cashback offers.
Who Can Open An Account?
Anyone 18 years or older who lives in the UK, has a UK bank account and can pass the identity checks.
What’s the Signup Process Like?
The signup process is simple. Click the signup button, fill out the information, pass the identity verification and you are in.
How Are Deposits Made?
Via bank transfer
What’s The Minimum Deposit / Investment?
Deposit: £1000 minimum
Loans: Auto invested so no further minimums
Does Bondmason Offer An Innovative Finance ISA?
How Much Interest Do They Pay Lenders / Investors?
Target return is 7% but returns can be higher.
Is Interest Paid Immediately Or Loans Start?
Interest is paid starting from the time your money is deployed into investments.
When Is Interest Paid?
Interest payments are staggered throughout the month.
Am I Lending To The Platform Or To Borrowers?
This is a grey area. Technically you are purchasing receivables from Bondmason Client Ltd (BCL) which are then linked to the peer to peer loans. Bondmason and client positions are separated. Bondmason is investing on lenders behalves through its sister company BCL. BCL then passes the cash flow to lenders through Bondmason’s platform. BCL is bankruptcy remote from the platform. No simple answer here as Bondmason’s legal structure is complicated here. In my opinion, because investors aren’t lending directly to peer to peer borrowers, investors are lending to the platform. I will seek clarification as I try to understand this further.
What Are The Fees?
Buying: Lenders are charged a 1% annual fee for the balance they hold.
Selling: Selling investments is normally free but Bondmason reserves the right to charge a 2% fee. This fee appears to be to deter frequent buying and selling. Sellers will be contacted by staff if a fee is to be charged upon sale.
What Are The Length Of The Loans?
The loans range from one month to five years. When you have auto investing enabled, you cannot select loan term lengths or the investments.
What Securities Are Used Against Loans?
It’s hard to say since there are no specific loan details listed on the website. Most loans are listed as being asset secured and only one of my current 50 loans is unsecured.
What Are The Loan Default Rates?
As of January 2017, out of the 1645+ loans that have been invested in, 19 defaulted. Eleven loans were fully recovered while six are in recovery. Two loans have had losses totalling £809.66, only 0.01% of total investments so far.
What Is Default Handling Like?
Since Bondmason is investing into loans offered by other peer to peer lending platforms, the platforms handle the loan defaults, not Bondmason. Lenders rely on Bondmason to maintain default pressure which they seem to do very well. So far I’m impressed.
Is There a Secondary Market?
Sort of. Bondmason advertises that they offer exit possibilities based on market demand. As of November 2016, Bondmason listed its liquidity / exit targets at:
- Up to £5k invested: same day liquidity
- Up to £10k invested: liquidity in 2-3 days
- Up to £25k invested: liquidity in 3-7 days
- Up to £50k invested: liquidity in 7-14 days
- £50k-100k: liquidity in 10-21 days
- Over £100k: contact them
Click here for the latest liquidity and exit information as this can change daily.
What Are The Main Risks?
Platform failure: Bondmason is a newer peer to peer platform so its lack of history adds to the lender investment risk. As with any peer to peer company, should Bondmason cease trading, lenders could face capital losses. Platform failure is the single biggest risk to peer to peer investors. Another concern is that its sister company BCL purchases the peer to peer loans. As I understand, BCL is also listed as the third party set up to handle the loan book in case of platform failure. Bondmason states that this legal structure is designed to protect lenders. Whilst this maybe true, there could be some conflict of interest here so I would much rather see Bondmason hire an independent third party for loan administration. If Bondmason fails, BCL could fail also even though it is legally separated from the platform.
Defaults: Bondmason’s experienced team analyses the quality of each peer to peer loan it places investors money into. For this reason I expect defaults to be low. However due to the volatile nature of peer to peer lending, defaults happen. Higher default rates could severely damage investor confidence leading investors to the exit doors. If investors exit all at once, it would be hard to sell existing investments as liquidity could dry up.
Lowering of standards: If Bondmason lowers its investment criteria standards, defaults could increase and returns could fall.
Hand-off investing: Passive investing has its downsides. Investment companies make frequent changes, some for the better and others for the worse. When you passively invest, it’s so easy to become complacent and forget to keep an eye on the company you are invested through.
Overall risk: Bondmason could be the future of investing in peer to peer lending. Before you invest, you should understand that this type of investing could be riskier than standard peer to peer lending because you are placing heavy reliance on Bondmason’s decision making and operation rather than choosing your own peer to peer loans.
Is There A Provision Fund?
What Happens If The Company Goes Bust?
Bondmason has a living will in place which would place a third party (Bond Mason Client Ltd. aka BCL) in charge of managing investors’ funds. The issue as discussed early is that BCL is the third party. As much as I like Bondmason, as I always warn, if it were to go under, there are too many unknown variables to know whether investors would see return of their capital.
WHAT I LIKE ABOUT BONDMASON:
Completely Hands-Off Investing
Peer to peer lending can be very time consuming. To overcome this problem, Bondmason created a true set-and-forget platform. Many lenders yearn for investment platforms where they can passively invest money and receive interest payments while they eat Monster Munch and watch Emmerdale Farm. Of course there are downsides to passive investing convenience, one of these being lower return rates.
Transparency / Great Communication
Without a doubt, Bondmason is one of the most transparent peer to peer lending companies. Their statistics page outlines all the activity including loan types, defaults, returns and cash drag effects. Some peer to peer companies aren’t good at communicating with their lenders so I certainly tip my hat to them for their refreshing approach. Should you need help, the communication is excellent.
Competitive Lender Return Rates
Advertised target return rates 7%. I’m currently achieving a rate of 8%+ which I think is reasonable for a passive investment. Since return rates fluctuate, I target an 8%+ return for the risks involved. Bondmason is a newer platform so I consider the risk factor higher.
Easy Platform Exit
Bondmason states that lenders can exit investments depending on the amount, website liquidity and demand. Remember you can never completely rely on being able to exit investments. If the economic climate changes and investors mass exit, liquidity could dry up.
Bondmason states than in 2016, they were able to fully liquidate and return clients funds within 24 hours in 95% of cases. Impressive!
Invests In Loans Normal Lenders Wouldn’t Have Access To
Peer to peer loan options can be limited to regular lenders. Since Bondmason uses an instituional business apporach, it has access to loans we don’t. For example, one of their loan partners has a minimum investment of £250,000.
Director And Staff Experienced In Financial Sector
Many peer to peer lenders overlook the importance of Director experience when considering investment risk. Bondmason has many experienced Board Members and Directors who have many years of financial services and investment analysis experience. The financial team analyses each loan opportunity and invests alongside lenders. It’s good to know the loans are being looked over by experienced people.
Low Defaults & Extensive Due Diligence
Bondmason’s high level of loan due diligence means loans default have been almost nonexistent. The financial team brings an institutional level of due diligence and only invests in platforms they have met with.
Skin In The Game
Bondmason invests in each loan it offers to its lenders, but their website doesn’t specify how much they invest. It certainly inspires confidence knowing that company interests are aligned with investors and that they to stand by the loans they buy.
The website is easy to use. Here is what the dashboard looks like:
The Future Of Peer To Peer Lending?
There are three peer to peer lending drawbacks that Bondmason maybe able to solve.
Firstly, the large amount of time it takes to wade through the hundreds of loan choices and various platform options. Bondmason’s hand-off investing could be the answer many people are looking.
Secondly, certain peer to peer platforms have lofty minimum investment amounts that are too high for us regular folk. For example Thincats has a £1,000 minimum investment per loan. A company like Bondmason can use the power of collective investing to purchase loans through these high minimum loan platforms.
Thirdly, in order to achieve 100% diversification in an ideal world, every lender would have a small piece of every viable loan on every platform. This way defaults or platform failures won’t affect lenders too badly. Both time, demand and financial limitations prevent lenders from being fully diversified. An ideal diversification level would be to have no more than 2% of platform money in each loan. For example, in order to be fully diversified on Thincats, a lender should invest in 50 loans. This would require a platform investment of £50,000, an amount that is probably out of most people’s financial reach. Bondmason lenders can set whether they wish to have no more than 1% or 2% of their balance in each loan investment (I use 1%). If Bondmason expands and buys loans from more platforms, it could be the most diverse option for peer to peer lenders.
A profitable and efficiently operated Bondmason could be the future in the peer to peer lending world!
WHAT I DISLIKE ABOUT BONDMASON:
Lender Invests In Receivables
Since lenders are buying receivables from Bondmason Client Ltd., lenders have no security rights over loans. I quote from their website, “Lenders have no recourse against either the seller or the borrower under the loan related to the receivables in the event that the receivables are not paid to the BondMason Customer Funds Account.” This adds another layer of lending risk.
£1,000 Minimum Starting Deposit
While there is a £1,000 minimum to get started, there’s nothing to stop you from depositing the minimum and then withdrawing funds to reduce to a comfortable level.
Short Track Record
Bondmason is a newer platform so this further increases lender risk. I took a leap of investing faith as I like their business model and think they maybe the future of peer of peer lending. It’s still early days yet so I will wait to see how things progress before investing further.
(I recommend evaluating your own risk tolerance to see if the risks are worth the returns.)
No Specific Details About The Loans Your Money Is Invested Into
Bondmason is designed to be a hands-off platform so I can understand the limited level of investment detail. It would still be nice for lenders to know what platforms and loan receivables their money was lent to; for diversification purposes if nothing else.
At the very least you can see loan return rate, borrower type and terms:
Can Take Time For Deposit Money To Be Fully Invested
Since peer to peer lender demand tends to outweigh loan supply, it can take several days or weeks for your money to start earning interest. This goes for reinvestment of interest payments also. Bondmason is trying to address this issue by working with additional loan companies to expand loan purchases.
Cash Drag Hurts Your Returns
Cash drag refers to money sitting idly in your account uninvested. Bondmason’s unique investing model makes cash drag inevitable as there is probably no way for them to have 100% of every lenders account fully invested. Presently you expect in the region of 10% of your funds to be uninvested.
Bondmason aims to reduce this number in future.
Bondmason’s Sister Company (BCL) Is The Company Designated To Process The Loan Book In The Event Of Platform Failure
As explained above, BCL was the third party company created to buy loans. BCL is also the company that is assigned to process the loan book in the event of platform failure. There could be some conflict of interest here so I would much rather see use of an independent third party for loan administration. If Bondmason the company does fail, there is a chance BCL could also fail.
Not FCA Regulated
While I don’t put too much weight on FCA regulation, it would be comforting to know Bondmason was under the watchful eye of the FCA. Bondmason’s FCA regulation will hopefully be approved soon.
For me Bondmason has been a set and forget platform.Once the money was deposited, there wasn’t much else to do other than watch and wait. I use the 1% maximum per loan to be as diverse as possible:
It took two weeks to become fully invested and since then, everything has been smooth sailing and payments continue. Most of my reinvestment money has been re-deployed but there are times where small amounts sit idly by.
I will continue to monitor Bondmason and possibly invest more money once the platform has a longer operational history.
The Bondmason Review Conclusion
I’m a fan of Bondmason’s transparency and competitive returns. It’s certainly a viable option for those looking for peer to peer lending exposure without the heavy time investment. There are risks involved since the platform is new and lenders have no direct claims over loan security due to the legal structure. Despite the risks and lack of history, Bondmason could be the future of peer to peer lending.
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** This unbiased Bondmason review is for information purposes only and should not be considered investment advice. Opinions expressed in this review are based upon my investing experiences. All information was deemed to be correct at the time of writing. Peer to peer lending contains risks so never invest more than you can afford to lose. **