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Post by chielamangus on Jul 15, 2014 12:06:42 GMT
To Wellesley
I notice that Wellesley has stopped putting AERs against their investment offers. Any particular reason why? It seems to me that your nominal interest rates (on Capital investments anyway) understate the return on all investments of 3 years and less.
For information, I've made a (favourable) comparison of your rates on the RS thread.
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Post by mrclondon on Jul 15, 2014 21:01:29 GMT
Oh dear. Wellesley & Co have just opened themselves up to the consequences of mis-selling complaints to the regulator. As such the platform risk of Wellesley & Co has just gone up significantly IMO.
wellesleyco any comments ? and no, that footnote won't satisfy the regulator. "Joe Public" will not be expected to understand what it means. You have been very badly advised on this one. Here is the table including the AER rates (which are VITAL to understanding the actual returrn on the capital option) from the previous version of their website. Click on the image (when logged into the forum) to view at full size. _  easteregg - your website will now need to calculate the correct rates as they are no longer available on the Wellesley & co website.
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Post by wellesleyco on Jul 16, 2014 13:32:27 GMT
Dear chielamangus & mrclondonThank you for your comments regarding our recent removal of AER reference rates, we had planned on providing a proactive posting on this forum today however you have keenly spotted this change on the same day as we made the change. Please allow me to explain why we have removed the AER rates. Our regulator, The Financial Conduct Authority, recently provided advice to the P2PFA regarding the use of AER reference rates. The view from the FCA was that despite there being no regulatory rule restricting any bank or regulated firm (including a P2P firm) quoting an AER rate, the firm may only quote an AER rate as long as it is clear, fair and not misleading. The view of the FCA is that P2P firms quoting an AER rate may not be clear, fair and not misleading. In particular, a long standing concern of the regulator has been the comparison of p2p lending to bank deposits on the basis that they are different in nature and P2P carries greater risk. The FCA concern is that if we are quoting AER rates, it may create the false impression in the minds of some customers that rates offered through P2P mean that they are the same as a deposit. We obviously wish to make it absolutely clear that investing funds through P2P lending is not the same as investing money in a bank deposit. We have therefore followed the regulators guidance and chosen to remove all references to AERs and instead make it clear that the rate quoted is a non-compounding rate. We are now going through our site and are updating it accordingly. In order for the business to have regulatory certainty, we have pro-actively provided examples to FCA of our updated financial promotions where we have removed the AER and replaced it with an annual non-compounding rate. Providing good customer service and ensuring we meet our customers needs is central to our business, and therefore if any customer would like to know the AER reference rates, we are happy to provide these on an individual basis with the appropriate disclosures. We appreciate that it was this forum that suggested the use of AERs and that the suggestions were made with the greatest of intentions and therefore we would like to thank everyone on this forum for their ongoing input, advice and support. |
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Post by chielamangus on Jul 16, 2014 16:47:27 GMT
Thanks for the explanation. However, I don't understand why you use nominal rates which understate (according to my calculations) the real rate. There are lots of people in this game that just look at the headline interest rate and no further, and they make unfavourable comparisons between Wellesley and other P2P sites. See this thread on RS: p2pindependentforum.com/post/16640/thread |
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Post by easteregg on Jul 16, 2014 19:16:05 GMT
Thanks for the heads up. I wasn't aware of this until you flagged it so many thanks for letting me know. My view is that this situation is very unfortunate for all concerned. Peer to peer lending isn't saving, banking or any other nominal risk activity so comparisons with bonds are unhelpful. For lenders to do a meaningful comparison they need comparable data, and the AER should be the starting point, with fees, estimated bad debts and taxation all taking into account. I'll be happy to lobby the FCA as I don't believe this "advice" is very helpful.
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Post by mrclondon on Jul 16, 2014 20:58:16 GMT
wellesleyco thanks for your clear comments on this matter. Little did I think, when I wrote "You have been very badly advised on this one." (a comment I stand by) that the advice would have come from the regulator itself. The problem for yourselves is that on the 3 / 4 / 5 year interest on maturity options, the nominal rate overstates the actual return by a huge margin. I also standby my comment that this opens you up to mis-selling complaints and compensation claims a few years down the line. You've only to look at how CPP and their sales agents (the high street banks) are being forced to pay hundreds of millions in compensation to every policyholder that claims when probably 95% of those took the policies out for the convenience of reporting stolen cards not for the fraud cover which was not portrayed fairly and hence has been deemed in hindsight mis-selling. Make sure you keep a hard copy of all correspondence on this subject in a fire safe. You may need it. You also should think very hard about withdrawing all those options where the nominal rate is higher than AER (i.e. any interest on maturity option for which the term is longer than 12 months). The risk may simply be too high. This is an issue primarily for yourselves, as most other interest on maturity loans on P2P platforms are 12 months or less.
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Post by mrclondon on Jul 18, 2014 21:57:00 GMT
I've just realised the monthly option (was 1.5%) has disappeared from both the rates page and the internal workings of the website. 0/10 for observation, although given the monthly term was never of any value to me I can perhaps be excused.
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james
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Post by james on Jul 24, 2014 12:35:21 GMT
I'm pleased that you have removed the AER information. I share the FCA's concern about comparisons to guaranteed deposits without investment risks and have not been happy with a significant amount of P2P promotions that I've seen, though not specifically your own.
I do think that it is possible that the concern is the use of the AER terminology and that perhaps you might be able to use a compound interest equivalent rate in some way or display an equivalent non-compounding rate for some compounded rates. Some way to compare P2x products using uniform interest rate reporting standard seems useful to foster both competition and consumer understanding of the possible returns, so I'd hope that the FCA would be receptive to some approach.
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sl75
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Post by sl75 on Aug 18, 2014 13:50:52 GMT
I'm pleased that you have removed the AER information. I share the FCA's concern about comparisons to guaranteed deposits without investment risks and have not been happy with a significant amount of P2P promotions that I've seen, though not specifically your own. These are two completely separate problems. Quoting an annual equivalent rate does not imply a risk-free investment (unless some badly-thought-out legislation defines it that way?) - it merely allows easy comparison between investments with equivalent risks. It is the comparison between investments that do not have equivalent risks (without highlighting those differences in risk) that seems to me a problem, not the use of AERs. Take this close to its logical extreme. Suppose someone creates a P2P product that, absent any renegotiation, gives no payments for 99 years, and then a single lump sum 100 times the original investment (potentially a realistic scenario based on property investments involving 99 year leases). It hardly seems reasonable to describe this as a "100% annual interest rate" as Wellesley would, when in fact the annualised return on investment in this scenario is about 4.7%. The only reason I can see to quote annual interest rates in that manner is to mislead potential investors, and I personally didn't touch Wellesley with a bargepole until they had started quoting the non-misleading AERs beside the misleading "annual interest rate" figures. It requires mathematics beyond the reach of most typical retail investors to compare the returns on Wellesley's "income" and "capital" products with each other, let alone with any other comparable investment products.
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Post by wellesleyco on Aug 20, 2014 15:51:47 GMT
sl75 Thank you for raising this point, it is a very valid and understandably concerning to investors. I shall explain the background for some who may be new to the Wellesley & Co. Platform. Wellesley & Co. have always displayed the offered interest rates in the form that they are currently displayed on the website. "All interest rates quoted as simple annual non-compound rates." However, shortly after launching we took the decision to display the Annual Equivalent Rates AERs alongside these rates. In Recent months we received a message from the FCA that stated the displaying of AER rates on our website should be removed. We obliged the regulator and have consequentially removed the AER rates from the site. We believe that our rates, displayed in their current fashion provide retail customers with a clear indication of the Fixed rate on offer. We have been fully disclosed as to how we have calculated the rate that we display, and secondly fully disclosed as to the risks involved with Peer-to-Peer lending. The rationale for this is as sl75 stated, Displaying AER rates allows easy rate comparison between investments that do not have equivalent risks. In the interests of not being misleading, the removal of AER rates acts to distance our Peer-to-Peer lending product from investments that are covered by the Financial Services Compensation Scheme (FSCS). I am sure somebody can enlighten me as to products that are not covered by the FSCS that quote AER. As for your example of a 99 year term. As our maximum fixed term is 5 year, this would not be a problem and albeit your example is true, we are not in a situation where this is relevant. One final point is that where our rates are quoted on comparison sites, there is often an element of error. Their quoting of rates is often inaccurate. We do act to rectify this however, from experience it appears not always to be a priority for them to correct quickly. Thank you all again for your feedback
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Post by chielamangus on Aug 23, 2014 16:41:13 GMT
It requires mathematics beyond the reach of most typical retail investors to compare the returns on Wellesley's "income" and "capital" products with each other, let alone with any other comparable investment products. Ah, but the maths can done for you within Excel. All you need to know is which function to use, and what IRR means. It's a two minute job these days. I used to have to do these sort of things with log tables at one time. That's shown my age!
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