How To Pass ArchOver’s Appropriateness Test

As is now standard in P2P lending, ArchOver will ask you to take a quick test before you lend. These tests are called appropriatness tests.

ArchOver* makes its test a little trickier than most, which is a testament to the fact it really wants you to understand what peer-to-peer lending through its online lending platform really means. With ArchOver, you need only take the test once.

Who can lend through ArchOver?

Before I get to showing you how to pass ArchOver's investor test, here's a quick summary of who can use ArchOver.

In short, anyone can lend through ArchOver. If you want to lend more than 10% of the total pot that you have available for savings and investments through peer-to-peer lending websites, ArchOver will ask you to select the type of lender (investor) you are:

• An investor who self certifies as sophisticated. ArchOver uses the older definition of self-certified sophisticated investor. This makes it harder for existing lenders to qualify, because your previous P2P lending experience has no value.
• A high net worth investor. ArchOver uses the standard definition of high net worth investor.
• Certified as a sophisticated investor – for professionals.

If you don't select one of those above categories, ArchOver expects you to undertake not to lend more than 10% of your savings pot. You will be what's known as a retail investor.

How to pass ArchOver's Investor Test

Below are the questions and multiple-choice answers you'll see in ArchOver's investor test.

• The bold answers are the correct ones.
• Sometimes more than one answer is correct.
• After each question, inside the gold lines, I provide more information if you need help understanding the questions and answers – and understanding ArchOver better.

About 4thWay's series on How To Pass The Investor Tests

Warning: taking these investor tests can cause pain or boredom! So, while 4thWay users are far more knowledgeable than most, we want to make things quicker, simpler, more educational and more understandable for you. You get plenty of help below. And you get plenty more help for many other peer-to-peer lending and IFISA providers in our How To Pass The Investor Tests series.

I'm sure I don't need to ask you to please make sure that you do your research thoroughly on all peer-to-peer lending and IFISA providers. You can do that by reading 4thWay's guides and provider reviews, and by looking into the opportunities for yourself.

If you can't correctly answer the questions in an investor test by yourself, you probably need to do a lot more research. Because the questions they ask cover just the bare basics about how they work. The tests don't inform you about how good they are at appraising potential borrowers or any of the other essential tasks they have to do on lenders' behalf. So arguably the most important bit is missing!

Here's ArchOver's investor test:

Q1. How does ArchOver manage your investment?

Answers

• By pledging across the ArchOver* platform, your money will be invested in loans of your choice. This means a contract will be formed between you (as the Lender) and Borrowers who will commit to repay you. ArchOver will act as Trustee to manage this process for you.
• ArchOver will manage your investment from start to finish. It will perform credit analysis on the Borrower businesses, set the interest rates and terms of the loans, and subsequently collect the repayments when they are due to you.
• ArchOver voluntarily provides you with a tax statement every year, but no tax is retained from you. It is therefore your responsibility to check if you owe anything to HMRC.

That was not a typo: all three answers above are in bold because you need to select all three.

Take note that you still select the top one even if you want to lend through ArchOver's Investment Plan, which is an optional auto-lending facility.

With the Investment Plan, you're not investing in “loans of your choice” – as stated in the question – but ArchOver still expects you to select this answer. It's a bit confusing.

As with all P2P lending websites, ArchOver does all the bits that banks do in assessing borrowers and chasing bad debts.

When it comes to taxes, you don't need to declare anything if you lend through an IFISA. Even if you lend through ArchOver's regular account, basic-rate and higher-rate taxpayers don't have to declare the rewards, unless you've earned sufficient interest. Read more about that in How Is Peer-To-Peer Lending Taxed?

Q2. Is peer-to-peer investing like depositing money in a savings account?

Answers

• Your money is being lent to Borrowers and there is a risk that they will not repay. This is different to depositing money with a bank because the return of your money is not guaranteed.
•  It's the job of ArchOver to manage and collect the repayments to your investment, but you are not covered by the Financial Services Compensation Scheme (FSCS) when using a P2P platform.
• An investment in ArchOver is similar to saving in a bank account. It's guaranteed by the FSCS so there is no risk.

I think 4thWay users know by now that you're investing, not saving, when doing P2P lending. Naturally, there are risks!

Q3. Could the interest rate and your earnings be different to the rate advertised?

Answers

• The advertised interest rate shows what you are expected to earn per annum. Over time you may earn a different rate as your money might be repaid early or late.
• Your overall rate may be reduced if your Borrower(s) delay a repayment or don't repay at all.
• The interest rate is guaranteed because ArchOver has a good track record.

Basically, since there are risks, interest rates you see at ArchOver might not be paid out to you.

Q4. What does ArchOver do to try and reduce the risk to your investments?

Answers

• ArchOver secures all loans on assets belonging to the Borrower which may be recovered and sold if the borrower fails to repay. This is designed to ensure that your investment performs, but it's not a guarantee.
• Some of ArchOver's loans are secured against the assets of Borrower businesses which may be recovered and sold if the borrower fails to repay, others may be unsecured.
• All of ArchOver's loans are unsecured, meaning that if a borrower defaults, all of Lender's capital will be indisputably lost.

Understanding the above question about secured lending could be very educational for lenders, so please take a moment to soak it up.

Not all secured lending is equal. When a loan is well secured, more bad debt is likely to be recovered. But not all secured lending is well secured. Sometimes it's weakly secured or it's somewhere in the middle.

In ArchOver's case, we're still waiting to see how its security pans out. But it will have some value, because it's based on identifiable business assets – typically invoices. This is not usually as strong as securing a loan against real estate, but it does tend to increase recoveries over unsecured business loans.

So it should mean lenders typically see more recoveries compared to unsecured or weakly secured business loans.

What security doesn't necessarily do is lower the risk of a loan going bad in the first place. It just increases your chances of getting money back when a loan goes bad.

ArchOver does some unsecured loans, too. Unsecured isn't necessarily higher risk if you're spreading your money widely and the quality of the borrower and loan is high. (Indeed, some forms of secured lending, such as some forms of short-term property lending, have very high risk of a loan turning bad.) With unsecured lending, you might also be rewarded with higher interest rates to compensate for any higher risks.

Q5. When can you withdraw your investment?

Answers

• When matched with a prospective buyer on a secondary market.
• At any time throughout the loan term.
• Within your 14 day cooling off period following your initial pledge.

ArchOver doesn't have a secondary market that allows lenders to buy or sell to each other. This means there is no easy way to get out of a loan before it's repaid naturally by the borrower. However, you can change your mind about lending in the first two weeks.

Q6. What would happen to your investment if ArchOver went out of business?

Answers

• You would lose the rights to your investment.
• ArchOver's wind-down arrangements would be triggered. These arrangements are a guarantee that your earnings will be as you expected.
• ArchOver's wind-down arrangements would be triggered. These arrangements are designed to ensure that ArchOver's infrastructure and operations continue and your investments continue to perform as expected until the end of their term.

ArchOver is backed by a large business which is likely to mean its wind-down plans are particularly stable. The most extreme way that a P2P lending or IFISA platform was to wind down would be if it went bust. You can read more about what happens in that situation in point four of The 12 Key Peer-To-Peer Lending Risks Risks.

Q7. Which of the following statements are true?

Answers

• ArchOver runs a contingency fund that pays out if your investment fails.
• ArchOver* allows Lenders to choose which Borrower's they can invest in and it is important that Lenders diversify their investments across a portfolio of Borrowers.
• ArchOver carries out due diligence and credit analysis on all the Borrowers on the platform and monitors each Borrower monthly and visits on-site once a year.
• If one Borrower is paying a higher interest rate an Investor should concentrate his funds into this opportunity.

Again, as with question one, while you can choose your lown borrowers and loans, you don't with the Investment Plan. Whether you choose for yourself or not, by far the most important defence against losses is to spread your money widely across lots of P2P lending websites or IFISA providers, and a very large number of loans. This is far more important than a contingency fund set aside by P2P platforms to cover losses.

I hope that users of 4thWay no by now that the interest rate is not a good way to measure risk. The rate is sometimes inappropriate at some peer-to-peer lending platforms. You should not pile your money into one loan or even mere handful of loans, even if the interest rate is low.

Visit ArchOver*.

ArchOver Review.

Pages linked to in this guide:

How To Pass The Investor Tests.

4thWay guides.

4thWay P2P lending website/IFISA provider reviews.

How Is Peer-To-Peer Lending Taxed?

The 12 Key Peer-To-Peer Lending Risks Risks.

Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.

We are not financial, legal or tax advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.

The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.

*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from ArchOver and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.