LegalTech Investment Benefits from Zero-Correlation

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LegalTech Investment Benefits from Zero-Correlation

When the proverbial hits the fan, whether for economic, political or pandemic reasons, it can be difficult for investors to keep their money protected. With the current coronavirus outbreak, we have all been thrust back into the unknown. And the hardest blow of all? The speed at which we all went from “blah” to lockdown meant that very few had time to study and respond.

The majority of investors in the UK are saving for specific life goals, such as retirement, a home purchase or university education. With the world locked in a state of emergency, this is an anxious time for many in terms of how it will impact our savings, and ultimately our financial future.

One of the golden rules of investing during times of uncertainty is to distance your capital as much as possible from the source of volatility. In these times, this means your money is safest invested in sectors that are least affected by the economic impact of the global pandemic. In other words, you want your portfolio to have as little ‘correlation’ as possible.

More now than ever, buyer beware

As is always the case with investment, it is essential that you always make your own considered decisions. This can be difficult in a landscape where we are bombarded with investment opportunities and media scaremongering – particularly at present.

The sectors that are most vulnerable to the impact of coronavirus include residential care homes, tourism and some types of property development projects where disposal or exit is directly tied into the sale of the units, one by one to the private buyer. This is mainly because these sectors have been significantly disrupted by the pandemic, with no timeline for a solution.

Nevertheless, unscrupulous investment firms are still marketing offers in these sectors, making it more important than ever to carry out extensive due diligence. What may be presented to you as an attractive opportunity in one of these sectors is very unlikely to perform as anyone expects under the current circumstances. Never before has it been more important to read the small print – ‘assured’ is not the same as ‘guaranteed’ and a buy back option does not bind the developer to cashing you out.

What is LegalTech and why doesn’t it correlate?

Most investors have heard about fintech, not least because of the significant value growth the market has seen. Fintech offers solutions for financial institutions and also consumers, with the emergence of digital banking products such as Monzo and Revolut. If you consider the way you carry out your banking today via an APP or order and pay for products via an APP, you can easily see fintech solutions at work – and in the mainstream.

LegalTech is a Software as a Service (SaaS) solution for the legal profession as fintech is for finance. The sector has emerged through the years of PPI claims. These unleashed a deluge of consumer claimants on the UK’s legal profession that required a technical solution to cope with.

LegalTech refers to the use of technology and software to provide legal services. It allows small to medium law firms to handle a larger caseload than they would otherwise be able to. LegalTech also provides consumers with a faster route to settlement for claims of all types including mis-sold mortgages, pensions and investments.

The Financial Services Compensation Scheme (FSCS) continues to drive consumers to make legal claims, regardless of the coronavirus outbreak. In fact, many more are expected to be pursuing compensation claims as they suffer the economic hardship of lockdown in the UK. For this reason, the legaltech sector is very likely to continue growing despite the economic devastation the pandemic is wreaking.

Of added interest is the parameters of that work – whereas standard legal work will involve case preparation and court work, the consumer claims for financial mis-selling, such as Plevin, are practical and straightforward exercises to the degree that around 95% of all cases are settled without court action.

Find out how you can use LegalTech investment to provide you with an income for the next 3 months by contacting an advisor today.