adrianc
Member of DD Central
Posts: 8,948
Likes: 4,787
|
Post by adrianc on Sept 18, 2016 7:56:37 GMT
...and replied.
|
|
|
Post by Wisealpha on Sept 18, 2016 8:34:12 GMT
Finally we make it clear on our site that we charge a 1% annual service fee (similar to Funding Circle and Zopa) and the yields on the loans/bonds are gross of our fees (you can see gross interest, our fees and net interest in your account summary when logged in). How does HMRC view this 1% fee - would I have to pay tax on it, or on the net amount I receive from you? You would pay tax on the net amount you receive.
|
|
|
Post by Wisealpha on Sept 18, 2016 8:47:10 GMT
Right... The referrals page says... www.wisealpha.com/dashboard#referrals - may only work once you're logged in. The Ts & Cs page linked to is www.wisealpha.com/about-us/promotionsSo far, all I can say is that it seems very painless. There's plenty of information, although some of it could be a bit more lay-friendly. My dipped toe consists of a grand, which I've spread between five bonds equally. The amount showing in my account is immediately about forty quid down, plus £25 in accrued interest. The five £200 purchases are showing as ranging between £204 and £182. There's no obvious way I can find to show where the differences are coming from. Thanks! reading that it would seem to point to free for the life of any investment purchased before the end of the year, I think I might give it a bash. will pm you my email address. Hi, Adrian - the difference comes from the price and whether it is above or below par (100%) and it is also because you have to buy accrued interest (from the last coupon date) - you get this back plus the interest you earn from when you purchased the bond when the next coupon is paid. This is the market convention when purchasing bonds in the secondary market. On the price side if you invest, say £100 and pay over 100% then the amount of principal of the bond is lower than £100. If the bond is below par conversely you get more principal. You can see the prices on the order ticket at the point you purchase. We will have a think and see how we can make this clearer in the reporting. On the referral offer there is no limit on the amount of friends that you can refer. So if you invite 3 friends you get £100, if you invite 6 you get £200.
|
|
|
Post by Wisealpha on Sept 18, 2016 10:45:34 GMT
It's the price that we pay the banks for the bonds (most of these bonds have already been issued and there is a secondary over the counter market between banks and large funds so the most popular ones can trade above par i.e because investors are happy to accept a lower return or yield to hold the bond than initially). We buy in £100k-£1m minimum lots from the bank and then sell to everyone on our site.
Going forward when we release our more sophisticated secondary market investors on our site will also be able to set the price they sell at (if they own the bond). The best offer price (i.e. the price we get from the banks or the price sold by investors on our site) is where a new buyer will purchase at.
|
|
adrianc
Member of DD Central
Posts: 8,948
Likes: 4,787
|
Post by adrianc on Sept 18, 2016 15:19:35 GMT
Hi, Adrian - the difference comes from the price and whether it is above or below par (100%) and it is also because you have to buy accrued interest (from the last coupon date) - you get this back plus the interest you earn from when you purchased the bond when the next coupon is paid. This is the market convention when purchasing bonds in the secondary market. On the price side if you invest, say £100 and pay over 100% then the amount of principal of the bond is lower than £100. If the bond is below par conversely you get more principal. You can see the prices on the order ticket at the point you purchase. We will have a think and see how we can make this clearer in the reporting. A little extra clarity would help, I think. I understand the accrued interest - but I'm still not sure I quite get the 100% bit. I said "£200 of each please", and got between £204(+£4.60) and £182(+£4.10). I'm sure it'll all work out right in the end. Probably. I think.
|
|
|
Post by Wisealpha on Sept 18, 2016 16:22:25 GMT
Hi Adrian, for some people it's easier to enter with the cash amount they want to invest in a particular name (and then the principal amount of the loan or bond is calculated after taking into account the price and accrued interest).
We'll probably create an option where you can switch the order ticket interface to enter the principal amount of each loan or bond you want to acquire and then the order ticket will tell you whether there is any extra or a lower amount to pay due to the price and accrued. That I think will be what you and some others may prefer.
|
|
adrianc
Member of DD Central
Posts: 8,948
Likes: 4,787
|
Post by adrianc on Sept 18, 2016 17:32:16 GMT
A little extra clarity would help, I think. I understand the accrued interest - but I'm still not sure I quite get the 100% bit. I said "£200 of each please", and got between £204(+£4.60) and £182(+£4.10). I'm sure it'll all work out right in the end. Probably. I think. You buy bonds in notional amounts of the par claim redemption value, say £100. So taking Ent**p**se Inns as an example. If you buy £200 of the bond, you are buying debt so that it will redeem at £200 on 6-Oct-2023. However, the price of the bond can fluctuate over time. At a yield to maturity of 5.70%, the clean price of the bond (without any accrued interest) would be £101.72 per £100 of notional. This bond pays semi-annual coupons (prior coupon of 3% was 6-Apr-2016, next coupon of 3% is 6-Oct-2016), so it currently has 167 days of accrued interest, assuming settlement 20-Sep-2016 (bonds typically settle T+2 or T+3). So accrued interest is 2.74 points (6*167/366, Act/Act day count convention). The Dirty price of the bond (including accrued) is then £101.72+2.74 = £104.46. So total consideration to buy £200 notional of the bond is £208.92. I note WA quote current yield but focus on the YTM column since this incorporates the "pull to par" of any bond priced above 100 or below 100. Typically bonds with a YTM above the coupon rate will trade below par and those with a YTM below the coupon rate trade above par. Note also that many of these bonds are callable by the issuer at par (albeit some have call protection in the early years). Aha! That makes a lot of sense. Thanks for that.
|
|
pikestaff
Member of DD Central
Posts: 2,136
Likes: 1,484
|
Post by pikestaff on Sept 19, 2016 5:28:51 GMT
How does HMRC view this 1% fee - would I have to pay tax on it, or on the net amount I receive from you? You would pay tax on the net amount you receive. Are you sure? Why is it different from FC where AIUI lenders are taxed on the gross interest and the fee is not deductible?
|
|
|
Post by Wisealpha on Sept 19, 2016 10:59:00 GMT
You would pay tax on the net amount you receive. Are you sure? Why is it different from FC where AIUI lenders are taxed on the gross interest and the fee is not deductible? While I can't comment on how tax works at different platforms because our members invest in our participation Notes (which are secured on the underlying loan or bond) rather than directly in the underlying loan or bond, our Notes pay members a coupon having already deducted the 1% equivalent from the headline coupon from the underlying). We recommend however that individuals seek their own tax advice.
|
|
pikestaff
Member of DD Central
Posts: 2,136
Likes: 1,484
|
Post by pikestaff on Sept 19, 2016 15:39:09 GMT
Are you sure? Why is it different from FC where AIUI lenders are taxed on the gross interest and the fee is not deductible? While I can't comment on how tax works at different platforms because our members invest in our participation Notes (which are secured on the underlying loan or bond) rather than directly in the underlying loan or bond, our Notes pay members a coupon having already deducted the 1% equivalent from the headline coupon from the underlying). We recommend however that individuals seek their own tax advice. Thank you, that makes sense.
|
|
|
Post by GSV3MIaC on Sept 19, 2016 18:44:52 GMT
The FC tax statement definitely shows net (after fee) interest income, so that's what I use for my tax return. If FC have got it wrong, the taxman will presumably tell them (and me).
|
|
|
Post by Wisealpha on Sept 19, 2016 21:07:56 GMT
Ok, it's starting to get interesting. How about a couple of sideways questions? If someone had joined as early as possible and put £100 in every loan, what would their current return? (I'm a big fan of strategic ignorance diversification) Assuming wiseAlpha has had a cash injection to pay for website, salaries, office space, etc - How long can wiseAlpha survive on that cash and how far are they away from achieving enough lenders to break even? Hi Paul, Assuming you put £100 in every loan or bond on the site at the moment the gross current yield/return (before fees) would would be 7.1% (Virgin media drags down the average as it's return is 4.4%). We are currently adding a loan or bond once every 2-3 weeks (yields will be between 5-8% with perhaps the odd fallen but recovering angel with teen type yields) and will look to have a live secondary market in a model portfolio of around 20+ UK names. We may add other currently inaccessible credit or private equity investments to our members over time and give access to higher risk/higher return investments for sophisticated members that have have exhibited experience in investing in this asset class on our platform and other types of investment. We recently raised £578,000 from Crowdcube and have a few large backers (fund managers) including myself that can invest more in the company. Our burn rate is £20k per month before marketing so we are managing our marketing and cash burn in line with growth and fee revenue. We plan to take in funding from a VC/Global bank at some point and/or offer out more equity to the crowd to boost our marketing budget and members. Our existing equity holders and platform members/lenders will get first dibs when we do our next equity round. We obviously have a structured our business with client assets held separately and overseen by an established $45bn administrator to ensure our members/lenders are protected in the event of an issue with the platform.
|
|
|
Post by jonboy73 on Sept 20, 2016 5:37:02 GMT
Hi Wisealpha, couple of questions..
Many thanks.
|
|
|
Post by Wisealpha on Sept 20, 2016 10:53:53 GMT
- wiseAlpha purchases the underlying loans and issues wiseAlpha Notes (similar characteristics to a bond) to investors which are backed by the specific loan that our members want to invest in. The Notes mirror the economic terms of the loan and any changes to that loan that happen in the future. We do this so that investors can invest small amounts in different loans. - the underlying companies all have at least several hundred million in revenue sometimes multi-billion revenues are are established corporates so it is a different market to the small business lending end of the spectrum and consequently the interest rate reflects the different company risk profile. Having said that we are not that dissimilar in returns to the largest P2P business lending platforms, it's the risk profile that is more of a corporate nature - the floating rate/variable nature of the loans means that as the Bank of England rate and consequently Libor increases the rate on the loans will increase (you can see this in the yield to maturity) What effect does interest rates have on the principal value of senior secured loans/bonds? If interest rates go up and the floating rate tracks Libor will the principal value drop until maturity? Interest rates in theory could affect the market value of the principal of fixed rate debt instruments (all else being equal). So for example if the central bank raised interest rates substantially the spread (i.e. the difference between risk-free rates of interest (like savings accounts) or other low risk benchmarks like treasuries and the rate on the fixed rate debt instruments - defined as risk assets) reduces making the fixed rate debt instruments less attractive. More simply put if savings acccount rates were very high, say 5% (and assume there were no hidden charges and you could invest what you wanted) then earning 6% on a bond isn't that interesting any more to the investor and so the price of the bond may fall increasing the yield or rate of return on the bond making the spread more reflective of the extra risk. Obviously the closer the bond gets to maturity the less this affect appears (there is a pull to par). For floating rate instruments such as loans (i.e. ones which have a libor component (Libor tends to track the central bank interest rate) these are better insulated against this type of affect since if the central bank increases rates this increases libor which in turn increases the rate of interest on the loan - so there is a natural shield in place limiting the affect of interest rate movements on the price of floating rate instruments like loans. Obviously, we are in an extremely low interest rate environment and in my opinion that doesn't look like it's going to change anytime soon. That is why we have over-weighted fixed rate bonds on our platform right now but we'll add more floating rate loans later.
|
|
|
Post by Wisealpha on Sept 20, 2016 11:06:11 GMT
Hi Wisealpha, couple of questions..
Many thanks. Hi Jonboy,
Our principal revenue stream is the 1% ongoing fee (taken from the interest payments) and the 0.25% sale fee. We don't take a margin on the bond price - we sell at the same price we purchase from the bank.
Our sale price right now tracks the price we pay with the bank and doesn't fluctuate until we purchase the next lot of the bond. Prices haven't really moved that much since we bought the last batch, if anything they are slightly higher on the open market versus where we are offering.
Overtime when we develop the more sophisticated secondary market (which our members will be invited to beta test) there will be more scope for price movement and it will tend to track the open market prices more as anyone entering a sell offer for a bond they own on our platform will have the bank/market price we are offering at to guide their sale price decision.
Bonds tend to move a little more than loans which tend not to move around as much (because of the floating rate component and the callability at par at any time).
We can display the bond ratings on our site - this will be included in the next round of development items - the loans and bonds we put on the site will range from BBB and B.
Kind regards,
|
|