sl75
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Post by sl75 on Oct 18, 2015 14:42:29 GMT
My estimates are the exit fees on the 5 year market peak at over 5% (at 35 months and 59 months), before assignment fees. That may be the case if such fees were indeed based on the difference in interest on the capital (as stated in the T&Cs that were quoted in part a few posts back). If anyone finds that the fees they're actually charged do NOT match the fee calculation described in the T&Cs, it will be for them to make the official complaint. I don't really see there's any official complaint from someone who wasn't planning on using the exit function anyway...!
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james
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Post by james on Oct 18, 2015 18:05:56 GMT
I don't really see there's any official complaint from someone who wasn't planning on using the exit function anyway...! Such a person would have no basis for a redress claim at the time but might view the promotion as misleading, something that can be complained about at any time. They could also seek an individual assurance that they will always be able to sell if they want to and an assurance about how small their loss on selling will be if they do eventually sell. Failing either of those they could instead seek the ability to sell immediately with no or an agreed "small" sales cost or an undoing of their original purchases. It doesn't seem likely that this will happen at the moment because the biggest potential losses come if interest rates have risen or if RateSetter becomes prohibited from doing business or insolvent and hence their assurance of an ability to resell has to be relied upon because there aren't any other buyers. Not that there's much chance of that happening in bankruptcy but if they were to be told to cease trading or just chose to there could be money to fund the transactions, at least for a while. Another case where the assured ability to sell would matter is if there was a sign that the protection fund might not have sufficient funds and it became desirable to sell loans that might rely on the facility. Or even just as part of a rush to the exits due to loss of confidence in the fund. Unlikely, of course, but the unlikely is where such assurances can have most value to an investor, providing a backstop to the normal market process.
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locutus
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Post by locutus on Oct 18, 2015 19:25:31 GMT
... If anyone has a legitamate complaint about their account (rather than an anonymous consumer champion's viewpoint) they should direct the complaint directly to RateSetter Customer Services. I complained to customer services. It was escalated a couple of times but ultimately went nowhere. I made the point at the time that they needed to review their Sell Out feature as more and more customers would complain once they realised how it worked. Of course, I was ignored. Customer services just kept saying how they were FCA compliant but we all know how little that means in general and especially in P2P. Essentially, as described in this thread, the formula used to calculate the fees allows RS to unfairly double and triple dip for their cut whilst at the same time, the marketing is very misleading. What makes it even more frustrating are that the fees generated are probably minuscule relative to the bad press they cause. It is frustrating as RS is a good platform but they have a few weak areas like this. I also detect a slight arrogance in their complaints handling procedure which makes me think little will change until the FCA get involved.
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Post by westonkevRS on Oct 19, 2015 14:11:58 GMT
Small update, the Marketing team are re-looking at the blurb but also a "calculator". The text is expected to change, but it is hoped that the sell-out calculator available to members will be available to non-members. Obviously this needs some amendment as it needs some hypothetical information, e.g. amount on loan within different terms, historical rate at which loans were booked, etc. No promises, but discussions are already happening.
Kevin.
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jimc99
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Post by jimc99 on Oct 19, 2015 20:36:30 GMT
I hope RateSetters legal guys will be involved in the future activities of the "Marketing Team". The prospect of future claims by lenders over possible "miss selling" of the RS products needs thinking about.
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Post by lb on Oct 20, 2015 12:19:32 GMT
Small update, the Marketing team are re-looking at the blurb but also a "calculator". The text is expected to change, but it is hoped that the sell-out calculator available to members will be available to non-members. Obviously this needs some amendment as it needs some hypothetical information, e.g. amount on loan within different terms, historical rate at which loans were booked, etc. No promises, but discussions are already happening. Kevin. do you think your Marketing Team could possibly look at highlighting the 'additional' risk on 3-5 year products.
That risk being that Interest Rates are at rock bottom currently - and WHEN they increase their investments WILL LOSE CAPITAL VALUE ? And then go on to give a typical scenario?
EG
5 year term @ 6% and rates after 2 years are 10% (owing to increase in base rate) ... where does this leave our imaginary Investor wanting to sell out of the IFISA?
or is that just too much transparency ...
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Post by moneyball on Oct 20, 2015 12:46:35 GMT
lb,
Base rates aren't going anywhere, and even if they do, they're going down.
I strongly suspect that even if base rates go up slightly, no material difference would be noted in RS rates
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jimbob
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Post by jimbob on Oct 20, 2015 15:14:44 GMT
Small update, the Marketing team are re-looking at the blurb but also a "calculator". The text is expected to change, but it is hoped that the sell-out calculator available to members will be available to non-members. Obviously this needs some amendment as it needs some hypothetical information, e.g. amount on loan within different terms, historical rate at which loans were booked, etc. No promises, but discussions are already happening. Kevin. do you think your Marketing Team could possibly look at highlighting the 'additional' risk on 3-5 year products.
That risk being that Interest Rates are at rock bottom currently - and WHEN they increase their investments WILL LOSE CAPITAL VALUE ? And then go on to give a typical scenario?
EG
5 year term @ 6% and rates after 2 years are 10% (owing to increase in base rate) ... where does this leave our imaginary Investor wanting to sell out of the IFISA?
or is that just too much transparency ...
Isn't this the reason 5 year rates are higher than say 3 year, the long term yield curve and expectation of rate rises perhaps a couple of years from now ?
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am
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Post by am on Oct 20, 2015 19:11:53 GMT
lb, Base rates aren't going anywhere, and even if they do, they're going down. I strongly suspect that even if base rates go up slightly, no material difference would be noted in RS rates Every now and again you see commentary in the press about the stock market having the jitters about US base rates going up. It seems to me that the consensus is that the next move in US base rates will be upwards. Maybe people investing in RS now will be able to reclaim their money for a "small" exit fee in 4 or 5 years because interest rates haven't risen in the interim. But this can't be guaranteed, and hence RS can't guarantee the ability to exit for a small fee, and hence shouldn't be promising it in the marketing materials. I'm a little concerned about the risk of the platform viability being compromised by the fall out.
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registerme
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Post by registerme on Oct 20, 2015 20:52:05 GMT
That's true am, equally five year RS loans amortise, and rates are unlikely to spike to 5+% overnight. So whilst the risk is absolutely in interest rates rising, and your long term lending rate not rising in tandem, if not done blindly you should be able to adjust. The shorter term interest rate risk is that "general" (used even more loosely than that) rates turn negative. Central banks are pretty much out of firepower other than to print money. Hard China landing, Brexit, NATO - Russia kinetic conflict, Iran goes nuclear, North Korea does something stupid, China takes a shot at a US warship sailing past the Spratleys, Eurozone woes / exit etc. The typical response would be to turn on the taps (even in the US which in spite of everything would probably see a "flight to safety"). But the taps are already on.
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Post by westonkevRS on Oct 20, 2015 21:13:11 GMT
That risk being that Interest Rates are at rock bottom currently - and WHEN they increase their investments WILL LOSE CAPITAL VALUE ? And then go on to give a typical scenario? lb, I think you're being a little unreasonable. And technically wrong, they won't lose capital value. The value will be eroded in real terms if inflation rises above the 6%. If Interest rates rise, it just means they could have obtained a better investment return at that future time probably. Nobody knows, that is the point. The reason rates are higher on longer term lending is because the risks are higher, with time brings changes such as interest rate changes. That is the nature of lock-in period type investments, you are rewarded for your risk. The terms are very clear and transparent. RateSetter obviously could provide a calculator to cover every conceivable eventuality that could happen in the next five years. But at some point people have to be treated as adults making clear decisions on transparent terms. westonkevRS
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registerme
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Post by registerme on Oct 20, 2015 21:16:47 GMT
RateSetter obviously could provide a calculator to cover every conceivable eventuality that could happen in the next five years. Go on then .
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am
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Post by am on Oct 20, 2015 22:43:20 GMT
That risk being that Interest Rates are at rock bottom currently - and WHEN they increase their investments WILL LOSE CAPITAL VALUE ? And then go on to give a typical scenario? lb, I think you're being a little unreasonable. And technically wrong, they won't lose capital value. The value will be eroded in real terms if inflation rises above the 6%. If Interest rates rise, it just means they could have obtained a better investment return at that future time probably. Nobody knows, that is the point. The reason rates are higher on longer term lending is because the risks are higher, with time brings changes such as interest rate changes. That is the nature of lock-in period type investments, you are rewarded for your risk. The terms are very clear and transparent. RateSetter obviously could provide a calculator to cover every conceivable eventuality that could happen in the next five years. But at some point people have to be treated as adults making clear decisions on transparent terms. westonkevRSFrom my viewpoint, having to pay an assignment fee to extract your money is equivalent to the loan losing capital value. It's equivalent to a tradeable corporate bond selling for less than the coupon, and doesn't everyone consider that a loss of capital value. Just as in the case of a bond the capital value returns to the coupon value at the maturity of the instrument; though I suspect the curve is a little wilder. A calculator is not the answer; it is a supplement to the answer; the answer is a clear explanation of the potential costs of early exit. One potentially positive point that hasn't been brought out explicitly is that if you are withdrawing less than your whole investment the sell out algorithm picks the most recent loan parts, which are normally the cheapest to withdraw. So if interest rates have been rising, and you've been reinvesting repayments, the first loan parts sold off have less interest reclaimed and a smaller assignment fee, so if you are withdrawing a smallish part of your money the exit fee with be fairly small. It's when you come to withdraw the last parts you get a shock. The person most at risk is the person who put in a lump sum to provide an income stream (with the income stream partly composed of capital repayments, rather like an annuity). I see the RateSetter blog (https://www.ratesetter.com/blog/article/an_update_on_sellout) has an example 7.6% exit fee. (This also answers the question as to which market the money is re-lent on; it's re-lent on the original market, rather than on the market appropriate for the remaining duration of the loan.) This was calculated when interest rates were higher, so presumably the exit fees are lower for money investment more recently than the start of 2011.
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Post by lb on Oct 21, 2015 8:30:54 GMT
That risk being that Interest Rates are at rock bottom currently - and WHEN they increase their investments WILL LOSE CAPITAL VALUE ? And then go on to give a typical scenario? lb, I think you're being a little unreasonable. And technically wrong, they won't lose capital value. The value will be eroded in real terms if inflation rises above the 6%. If Interest rates rise, it just means they could have obtained a better investment return at that future time probably. Nobody knows, that is the point. The reason rates are higher on longer term lending is because the risks are higher, with time brings changes such as interest rate changes. That is the nature of lock-in period type investments, you are rewarded for your risk. The terms are very clear and transparent. RateSetter obviously could provide a calculator to cover every conceivable eventuality that could happen in the next five years. But at some point people have to be treated as adults making clear decisions on transparent terms. westonkevRSI don't think I am technically wrong.
A 5 year product is effectively a bond - as yields rise, prices go down. I don't see how you can say that is technically wrong.
I genuinely like RS and think it is the best P2P site currently so maybe I am being too critical - but I think it is totally misleading to portray the headline risk as 'borrower default' (and provision fund covers and we have £16m blah blah blah so please don't worry about it) when in reality the most obvious risk is interest rates rising.
The longer the term the BIGGER THAT PARTICULAR RISK BECOMES - and yes, the lower capital value your investment will have. Interest rates cannot go much lower, if at all. So it should be made clear that this is a ONE WAY BET where you have virtually no upside to that risk but only downside. I think I read that even if there was upside RS keep it ...
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registerme
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Post by registerme on Oct 21, 2015 9:17:45 GMT
lb, sorry, but I disagree, the 5yr product is absolutely not a "bond". It amortises. It can't be a bond. For you to loose capital you would have to have default risk, platform risk and or inflation spiking faster than you can adjust. If interest rates rise, rapidly, to accommodate the later then you might be locked into a lower rate than you would otherwise be in but in terms of your investment that's opportunity cost. The only other way I think you could lose capital is if we had an inflation spike, and an interest rate spike, and you wanted to sell out, and that this incurred some kind of additional fee because of interest rate delta.
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