bigfoot12
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Post by bigfoot12 on Nov 18, 2014 8:43:48 GMT
But then you don't get the benefit of the tax treatment of the provision fund. Or am I missing something? OOI, what are the tax benefits of the provision fund? I am not a lawyer or accountant...blah, blah, this is not advice,.... blah blah, ....you need advice personal to your situation,...blah,blah.....but AFAIU Imagine that the the gross yield is 9.75% and default losses equate to 2% per year, then a zero rated tax payer or ISA or SIPP investor has a annual yield of 7.75%. A taxpayer, however, has to pay tax on the full 9.75% and then (in the case of business lending) claim a capital loss equivalent to the 2%. If like me you don't have many capital gains and don't even use your full £10k allowance that 2% isn't worth much. Assuming that the capital loss is worthless and using the numbers above a basic rate taxpayer would have net income of 5.8%, 40% payer 3.85% and 45% 3.36% which equates to an equivalent gross yield of 7.25%, 6.41% and 6.11% respectively. In this case the basic rate taxpayer is better off not using the provision fund and the higher rate taxpayers are better off with the provision fund. (Assuming that the provision fund will be able to pay out in full, though even then if it can't payout presumably the unhedged portfolio would be doing very badly as well.)
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sl75
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Post by sl75 on Nov 18, 2014 10:19:11 GMT
chris: OK. I accept that this was done deliberately. But if that's the case, what's the point of the statement on the loan page? I would have expected that once alternative ways of investing had been enabled, that statement would have expanded to look something like... I would have thought that anyone investing at AC via more than one of the available channels would like to know what their total exposure to a given loan is so that they could keep that at a level they're comfortable with. The green account isn't the only product we'll have, and the admin team can enable or disable the breakdown of holdings on a per product basis. So as others launch that aren't provision fund protected, or as the create your own launches, then they'll appear there as you have described. The current phrasing strongly implies that the first number should be the total exposure via all investment accounts. If it is not, either the phrasing or the number needs to change. For example, more clarity could be provided on this by adding a footnote on that page saying something like "this total excludes investment via products that benefit from the protection of a provision fund". On a separate note, one potential concern, particularly if the GEIA becomes sufficiently popular that WT loan units become relatively rare on the AM, would be that well-informed lenders holding their loan units in the MLIA could "dump" them just as they are about to run into trouble, causing their loan units to be absorbed into the GEIA... thus by the time an actual loss is experienced, the GEIA may have a disproportionately large exposure to the troublesome loan(s). Similarly, if a general systemic problem were to arise, so that investors fear the risk of loss to be worth it, there could be a large-scale movement of investment in WT loans from the MLIA to the GEIA. It would perhaps not seem fair that an investor who had been sacrificing around 2.5 percentage points of potential income in order to make contributions to the provision fund would have their level of protection diluted by another who had been benefiting from the full gross rate during the good times, and switched to the GEIA at the first sign of trouble.
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pikestaff
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Post by pikestaff on Nov 18, 2014 12:00:45 GMT
...Similarly, if a general systemic problem were to arise, so that investors fear the risk of loss to be worth it, there could be a large-scale movement of investment in WT loans from the MLIA to the GEIA. It would perhaps not seem fair that an investor who had been sacrificing around 2.5 percentage points of potential income in order to make contributions to the provision fund would have their level of protection diluted by another who had been benefiting from the full gross rate during the good times, and switched to the GEIA at the first sign of trouble. That is a very good point! 
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jonno
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Post by jonno on Nov 18, 2014 13:59:57 GMT
...Similarly, if a general systemic problem were to arise, so that investors fear the risk of loss to be worth it, there could be a large-scale movement of investment in WT loans from the MLIA to the GEIA. It would perhaps not seem fair that an investor who had been sacrificing around 2.5 percentage points of potential income in order to make contributions to the provision fund would have their level of protection diluted by another who had been benefiting from the full gross rate during the good times, and switched to the GEIA at the first sign of trouble. That is a very good point! By George! I think I've just formulated my long term "green" investment strategy.  P.s. if this is allowed, I think it's the 7%'s who are "green"
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Post by chris on Nov 18, 2014 14:18:17 GMT
That is a very good point! By George! I think I've just formulated my long term "green" investment strategy. P.s. if this is allowed, I think it's the 7%'s who are "green" There'll be no transferring of loan units from one account to another for this reason, amongst a few others. We may allow transfers between your own accounts, so you can manually invest and then transfer those loan units to an investment account you've created for example. But that's a few weeks away at least even if we decide to allow it. If this kind of behaviour becomes a problem then the only way I can think of solving it in a universal and fair way is to charge a transaction fee on the aftermarket.
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niceguy37
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Post by niceguy37 on Nov 18, 2014 14:27:40 GMT
...Similarly, if a general systemic problem were to arise, so that investors fear the risk of loss to be worth it, there could be a large-scale movement of investment in WT loans from the MLIA to the GEIA. It would perhaps not seem fair that an investor who had been sacrificing around 2.5 percentage points of potential income in order to make contributions to the provision fund would have their level of protection diluted by another who had been benefiting from the full gross rate during the good times, and switched to the GEIA at the first sign of trouble. That is a very good point! If the Bank of England rate ever rises back to "normal" levels, it will interesting to see how the Green accounts fare, being locked in at 7%.
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oldgrumpy
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Post by oldgrumpy on Nov 18, 2014 14:36:01 GMT
By George! I think I've just formulated my long term "green" investment strategy. P.s. if this is allowed, I think it's the 7%'s who are "green" There'll be no transferring of loan units from one account to another for this reason, amongst a few others. We may allow transfers between your own accounts, so you can manually invest and then transfer those loan units to an investment account you've created for example. But that's a few weeks away at least even if we decide to allow it. If this kind of behaviour becomes a problem then the only way I can think of solving it in a universal and fair way is to charge a transaction fee on the aftermarket.No thank you. Not universal. Maybe just on transfers into the Green Account. But how do you then get round if I buy new into green (permissable), then sell existing units in my MLIA holdings
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bigfoot12
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Post by bigfoot12 on Nov 18, 2014 14:36:05 GMT
If this kind of behaviour becomes a problem then the only way I can think of solving it in a universal and fair way is to charge a transaction fee on the aftermarket. You could have a 30 day 'reverse cooling off' period following all transfers. Any material change in a loan [in the 30 days] following a transfer results in the transfer being unwound. Or something similar...
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bigfoot12
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Post by bigfoot12 on Nov 18, 2014 14:38:10 GMT
But how do you then get round if I buy new into green (permissable), then sell existing units in my MLIA holdings If you could sell the problem loan to someone else why would you want to buy it back, even if it is protected! Buy something else.
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Post by chris on Nov 18, 2014 14:45:34 GMT
If this kind of behaviour becomes a problem then the only way I can think of solving it in a universal and fair way is to charge a transaction fee on the aftermarket. You could have a 30 day 'reverse cooling off' period following all transfers. Any material change in a loan [in the 30 days] following a transfer results in the transfer being unwound. Or something similar... Yeah. Definitely needs a period of reflection and to see if it's actually a problem in the first place.
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oldgrumpy
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Post by oldgrumpy on Nov 18, 2014 14:48:37 GMT
But how do you then get round if I buy new into green (permissable), then sell existing units in my MLIA holdings If you could sell the problem loan to someone else why would you want to buy it back, even if it is protected! Buy something else.I'm too dim to think of that kind of strategy. 
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jonno
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Post by jonno on Nov 18, 2014 14:57:49 GMT
If you could sell the problem loan to someone else why would you want to buy it back, even if it is protected! Buy something else.I'm too dim to think of that kind of strategy. Wow, bigfoot12-I'd pay for that kind of advice
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bugs4me
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Post by bugs4me on Nov 18, 2014 15:49:40 GMT
That is a very good point! If the Bank of England rate ever rises back to "normal" levels, it will interesting to see how the Green accounts fare, being locked in at 7%. But they are not locked at 7%. The figure quoted is only projected so presumably it is variable.
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Post by batchoy on Nov 18, 2014 15:59:33 GMT
If the Bank of England rate ever rises back to "normal" levels, it will interesting to see how the Green accounts fare, being locked in at 7%. But they are not locked at 7%. The figure quoted is only projected so presumably it is variable. The blurb for the current issue states "7.00% p.a. gross return, capped and protected by a Provision Fund;" which I certainly take to mean that you wont earn more than 7% but you could earn less. The question then being if BoE rates rise and other rates follow suit will AC change the current 'Series 1' offer or look to issue a new 'Series 2' offering with a different loan pool with higher rates. In which case people could find themselves locked into the 'Series 1' offering if there were limited takers for the lower rate loans in the 'Series 1' offering.
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niceguy37
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Post by niceguy37 on Nov 18, 2014 16:08:31 GMT
If the Bank of England rate ever rises back to "normal" levels, it will interesting to see how the Green accounts fare, being locked in at 7%. But they are not locked at 7%. The figure quoted is only projected so presumably it is variable. I suppose if some 8% loans, for example, came along they could be included, but would just be a lot more popular than those at 7%. One advantage the Green Account has over Abundance Generation, AIUI, is that loans are generally for 3 years, whilst AG is often for 20 years. I don't know if AG debentures benefit from FIT annual escalation, but this would provide some protection against rising rates over the life of the loan. One of the challenges of P2x longer terms loans is that if market rates rise substantially then the borrower enjoys below market rates, but if the market drops significantly then the borrower is free to refinance.
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