BondMason Closure – My Thoughts
** BondMason review updated November 5th, 2019 **
On May 23rd, 2019, the powers that be at Bondmason decided to discontinue their peer to peer lending, choosing to no longer accept new investors and wind down their current loan book. The reasons for this decision are based on rising cost factors, economic forecasts and the ability to deliver net returns based upon equivalent risk.
Bondmason is not in financial difficulty and their loan book will be completed over the next 12-18 months. I expect all investors to receive their targeted return of 8% per year plus capital.
I had a phone chat with Bondmason CEO Stephen Findlay who explained Bondmason’s decision to close its peer to peer lending business.
What Happened To Bondmason?
On paper, BondMason filled all the wants of a hands-off peer to peer lending investor. Attractive returns and a set-and-forget auto investment backed by an experienced team who vetted investment opportunities.
Stephen Findlay explained that Bondmason isn’t closing due to financial difficulties and Bondmason’s highly analytical team identified some challenges that led to the closure decision. These challenges are highlighted below:
Bondmason had struggled to obtain FCA regulation: Bondmason experienced increased legal, compliance and regulatory costs as it tried to obtain FCA regulation. Ultimately, Bondmason didn’t fit what the FCA considered a standard peer to peer lending company.
Increased institution money: Large financial institutions have been flushing the peer to peer lending sector with money making the space more competitive and driving returns lower.
Bondmason didn’t feel like it could continue to offer 6% returns: Bondmason had achieved attractive returns for its investors but didn’t think it would be able to continue to achieve 6% returns long-term.
Will Investors Get Their Money Back?
Bondmason plans to have its loanbook wound down in 12 months with 60% being completed in the first six months. Bondmason expects investors to receive their full capital and interest.
Bondmason: My Experiences
I gave BondMason a try during its early launch day and was extremely happy.
When BondMason announced an increase in fee structure and minimum investments, I decided to exit the platform. For those investing £5,000 – £25,000, the annual fee was raised to 1.5%. After tax, I calculated I would be earning between 3-5% per year which wasn’t very attractive to me considering the risk involved.
What Is 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: 01582 802 000
When Did They Launch?
Is BondMason Regulated?
Bondmason was unable to obtain FCA regulation.
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. The senior team are FCA approved persons.
BondMason’s Company Financial Health
BondMason hasn’t published their profit and loss information. You can view Bondmason’s company accounts here.
What Was The Minimum Deposit / Investment?
Deposit: £5000 account minimum
Loans: Auto invested so no further minimums
Bonds: £1,000 minimum investment
Did BondMason Offer An Innovative Finance ISA?
How Much Interest Did BondMason Pay Investors?
BondMason Core clients achieved an average yearly net return of 6% since 2015.
Is Interest Paid Immediately Upon Investment?
interest is paid starting from the time your money is deployed into investments but interest is not while your money sits in the investment queue.
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. In my opinion, because investors aren’t lending directly to peer to peer borrowers, investors are lending to the platform.
What Are The Fees?
- 1.5% p.a. on investment amounts for first £25,000
- 1.25% p.a. on the next £75,000 (£25,001 to £100,000)
- 1.0% p.a. on all invested amounts over £100,000
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?
BondMason doesn’t list specific loan details on their website. Most loans are listed as being asset secured. Only one of my 50 loans was unsecured but this can vary.
BondMason invests in private loans as well as loans on other peer to peer platforms, so security varies but it is usually property related.
Typically between 75-80% of underlying loans are secured by UK property via a first or second ranking charge. The remainder of loans are secured by other assets such as debentures, floating charges and personal guarantees.
What Are The Loan Default Rates?
According to BondMason’s website, as of January 2019, 87% of their loan book is performing as expected while 5.23% of loans are on a watchlist which means these loans require monitoring. BondMason has written off 0.1% of its total loan book and expects a total loss ratio of 0.5 – 2%.
When I invested through BondMason, only two of my loans defaulted out of 68 loans I held.
What Is Default Handling Like?
BondMason mixes its investments in loans offered by other peer to peer lending companies, and loans it originates itself. Regarding outside companies, BondMason monitors the default collection process. Regarding internal loans, I don’t have information about how the collection process works but after my conversation with CEO Steve Findlay, my confidence in their process is high and so far I’m impressed.
Is There a Secondary Market?
Sort of. BondMason offered exit possibilities based on market demand. Now that Bondmason is closing, the early exit won’t be possible and investors will have to wait for the loan book to wind down.
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 LIKED 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.
Director And Staff Highly Experienced In The Financial Sector
Many peer to peer lenders overlook the importance of Director experience when considering investment risk. BondMason has 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 analysed over by experienced people.
After my lengthy conversation with CEO Stephen Findlay, I have a high regard for BondMason’s team and its values. Stephen expressed how they realise people have entrusted their money to BondMason and the team doesn’t take this responsibility lightly.
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.
Invested In Loans Normal Lenders Wouldn’t Have Access To
Peer to peer loan options can be limited to regular lenders. Since BondMason used an institutional business approach, it had access to loans we don’t. For example, one of their loan partners has a minimum investment of £250,000.
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 loan borrowers and platforms they have personally met and interviewed.
Skin In The Game
BondMason invested 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 investor dashboard looks like:
The Future Of Peer To Peer Lending?
There are three peer to peer lending drawbacks that BondMason attempted to solve.
Firstly, the large amount of time it takes to wade through the hundreds of loan choices and various platform options. BondMason’s hands-off investing was the answer many investors were looking for.
Secondly, certain peer to peer platforms have lofty minimum investment amounts that are too high for regular folk. For example, Thincats has a £1,000 minimum investment per loan. A company like BondMason used 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 were able to set whether they wished to have no more than 1% or 2% of their balance in each loan investment (I used 1%).
BondMason could have been the future in the peer to peer lending world but alas, it was not to be.
WHAT I DISLIKED ABOUT BONDMASON:
BondMason has some pretty significant annual fees of up to 1.5% that can drag down your returns (see above in the Fees section).
If you know anything about me, you’ll know I dislike investments with high fee structures. Low fees are the reason why I invest in index trackers and not managed unit trusts.
At 1% I thought BondMason’s fees were palatable, but at 1.5%, I find this no longer to be true. Let me show you how much this 0.5% fee increase will cost you over 20 years:
|Investment Amount Left 20 Years||Return %||End Amount||0.5% Fee Cost|
With £20,000 invested, the 0.5% extra fee costs you over £6,924 or £346 per year.
While I understand the reasons for the fee hikes, I still dislike them. If the target net return rate of 6% is met, some higher paying tax people may only net 4-5% post-tax which could be too low for the risk.
£5,000 Minimum Starting Deposit
BondMason increased its required minimum account balance from £1,000 to £5,000. This was a shame because many early adopter investors didn’t want a higher exposure in the platform and had to liquidate or run off their accounts. BondMason made this change so the team could focus on finding quality investment loans while continuing to offer a high level of customer service.
While I was disappointed about the minimum rise, I understood why BondMason made the changes.
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.
No Specific Details About The Loans Your Money Is Invested Into
BondMason was 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 companies and loan receivables their money was lent to; for diversification purposes if nothing else.
Bondmason will be publishing this information for all investors soon.
Cash Drag Hurts Your Returns
Cash drag refers to money sitting idly in your account uninvested. BondMason’s unique investing model made cash drag inevitable as there is probably no way for them to have 100% of every lender account fully invested at all times. I expected 10% of my funds to be uninvested although some Financial Thing readers claimed their cash drag to be as high as 40% at times.
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 company 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 worked closely with the FCA but couldn’t receive the regulator’s approval.
For me, BondMason was a set and forget platform so my strategy was simple. Once the money was deposited, there wasn’t much else to do other than watch and wait. I used the 1% maximum per loan to be as diverse as possible. This selection is under the settings menu in the dashboard.
Once I deposited money, it took two weeks to become fully invested and after that, everything was smooth sailing and monthly payments were received promptly. Most of my reinvestment money was re-deployed quickly but there were times where small amounts of cash sat idle.
The BondMason Conclusion
I was disappointed to learn of Bondmason’s decision to close its peer to peer lending business. I am a fan of BondMason’s transparency, team experience, and business model. I loved how the team carefully analyses each peer to peer company and loan they invest in. CEO Stephen Findlay was dedicated to the moral responsibility of protecting investors monies.
Unfortunately, the increase in annual fees and minimum account balances made me decide to exit the platform.
I have no doubt Bondmason will work diligently to wind down its loan book to ensure all of its investors are repaid.
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** This Bondmason review is for information purposes only. This information is not financial advice and has been prepared without taking your objectives, financial situation or needs into account. You should consider its appropriateness for your circumstances. All investing carries risks. Opinions expressed in this review are opinions based on my own personal experiences. The FSCS does not cover peer to peer lending and your capital is at risk. Please don’t invest more than you can afford to lose. **