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Post by lb on Oct 21, 2015 9:44:18 GMT
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registerme
Member of DD Central
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Post by registerme on Oct 21, 2015 9:46:02 GMT
Thanks, I never even knew they existed (and worked in and around fixed income for nearly twenty years)!
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Post by lb on Oct 21, 2015 9:51:30 GMT
For you to loose capital you would have to have default risk, platform risk and or inflation spiking faster than you can adjust. the last of which is the biggest risk on RS and should be highlighted - and not just inflation risk it is INTEREST RATE risk. such as, better platforms comes out. RS must compete. They must raise rates. etc!!
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Post by lb on Oct 21, 2015 9:52:25 GMT
Thanks, I never even knew they existed (and worked in and around fixed income for nearly twenty years)! they exist on RS
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james
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Post by james on Oct 21, 2015 11:50:47 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. Of course loans lose capital value when interest rates rise. That's built in to the secondary market pricing formula, the part that lowers the selling price to get an interest rate for the buyer that is comparable to rates at the time of valuation/sale. There are two relevant cases: A. a person who will sell. The capital value for them has dropped. B. a person who will never sell. While the capital value has dropped they may not care because with each payment they are getting capital back at par from the borrower. Both also have reduced real value due to inflation but that's more like a red herring than the core of the issue, which is the market value at the time of the valuation. If you want to check for a capital value loss just get secondary market prices for today's rate and a rate one percent or two percent higher and compare the two as a percentage of the capital still owed by the borrower at the time. There's going to be a significantly larger percentage haircut at the higher interest rate. The email claim that the cost is small is in part a claim that RateSetter's secondary market doesn't have this effect and it's something that is highly valuable to a person anticipating selling at some point because it protects them from the effect of interest rate rises on the price.
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niceguy37
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Post by niceguy37 on Oct 30, 2015 15:48:47 GMT
Just having a play with sell-out, to see HOW expensive it is... If I try to withdraw £5k from the 5yr market, it'll cost me just over £25. If I try to withdraw £10k, it'll cost me just under £98. I suspect that, if I tried it when the last-matched rate was higher, it'd be cheaper. I don't think that particularly expensive at all - certainly compared to any kind of three- or five-year savings account, where it's quite probably physically impossible to get at the money early except in the direst of situations. I invested some money on behalf of my Dad, fully expecting and intending to have it invested for 5 years, but with the knowledge that the option of early-withdrawal was planned. We were early adopters of RS and the higher risk of an early supporter got 5 years rates of 8.5%. Then my Dad fell, hit his head badly, got a subdural haemotoma, with less than 10% chance of recovery at his age. This was about 3 years after our initial investment. So I started to cash in his investments, thinking he'd need to get some cash together. So he'd borrowed at 8.5% over 5 years. And been paid interest at 8.5% for about 3 years. So to sell, RS looked at what he'd get if he'd lent the money over 1 year, which was about 4%, and so took back the difference i.e. 3 years x (8.5% - 4%) = 13.5%. Plus the Sell-out fee. I don't know how RS can claim that this is fair or reasonable. I've written to them and complained in this forum to no avail, so despite being an early adopter with £60K invested at one time, I'm now running down my investments and taking them elsewhere. I appreciate they don't want people to game the system, but if another lender wants your money and is happy with the rate then what's the problem. After all this is exactly how the monthly market works.
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locutus
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Post by locutus on Oct 30, 2015 16:10:31 GMT
Just having a play with sell-out, to see HOW expensive it is... If I try to withdraw £5k from the 5yr market, it'll cost me just over £25. If I try to withdraw £10k, it'll cost me just under £98. I suspect that, if I tried it when the last-matched rate was higher, it'd be cheaper. I don't think that particularly expensive at all - certainly compared to any kind of three- or five-year savings account, where it's quite probably physically impossible to get at the money early except in the direst of situations. I invested some money on behalf of my Dad, fully expecting and intending to have it invested for 5 years, but with the knowledge that the option of early-withdrawal was planned. We were early adopters of RS and the higher risk of an early supporter got 5 years rates of 8.5%. Then my Dad fell, hit his head badly, got a subdural haemotoma, with less than 10% chance of recovery at his age. This was about 3 years after our initial investment. So I started to cash in his investments, thinking he'd need to get some cash together. So he'd borrowed at 8.5% over 5 years. And been paid interest at 8.5% for about 3 years. So to sell, RS looked at what he'd get if he'd lent the money over 1 year, which was about 4%, and so took back the difference i.e. 3 years x (8.5% - 4%) = 13.5%. Plus the Sell-out fee. I don't know how RS can claim that this is fair or reasonable. I've written to them and complained in this forum to no avail, so despite being an early adopter with £60K invested at one time, I'm now running down my investments and taking them elsewhere. I appreciate they don't want people to game the system, but if another lender wants your money and is happy with the rate then what's the problem. After all this is exactly how the monthly market works. An excellent example of why the RS sell out feature is flawed. Plenty of investors would love to have bought those 8.5% contracts off you at par but for some reason you're penalised.
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jo
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Post by jo on Oct 30, 2015 16:25:01 GMT
A legal challenge by a billionaire activist hedge fund manager with access to an army of QCs would sort this out.
Anyone?
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adrianc
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Post by adrianc on Oct 30, 2015 17:25:35 GMT
Sorry, I'm otherwise tied up at the mo.
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james
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Post by james on Oct 30, 2015 17:44:17 GMT
I invested some money on behalf of my Dad, fully expecting and intending to have it invested for 5 years, but with the knowledge that the option of early-withdrawal was planned. We were early adopters of RS and the higher risk of an early supporter got 5 years rates of 8.5%. Then my Dad fell, hit his head badly, got a subdural haemotoma, with less than 10% chance of recovery at his age. This was about 3 years after our initial investment. So I started to cash in his investments, thinking he'd need to get some cash together. So he'd borrowed at 8.5% over 5 years. And been paid interest at 8.5% for about 3 years. So to sell, RS looked at what he'd get if he'd lent the money over 1 year, which was about 4%, and so took back the difference i.e. 3 years x (8.5% - 4%) = 13.5%. Plus the Sell-out fee. I don't know how RS can claim that this is fair or reasonable. I've written to them and complained in this forum to no avail, so despite being an early adopter with £60K invested at one time, I'm now running down my investments and taking them elsewhere. I appreciate they don't want people to game the system, but if another lender wants your money and is happy with the rate then what's the problem. After all this is exactly how the monthly market works. I suggest that you: 1. Check whether RS included in their most recent email on this subject a statement that this was their final response and that you have the right to take the matter to the Financial Ombudsman Service. I believe this is a mandatory regulatory requirement where the FOS right applies. Then I suggest that you do take the matter to the FOS. If no final response letter has been sent I suggest that you first gather your facts that you will present to the FOS and then send those to RateSetter to give them one last chance to resolve the matter before you take it to the FOS. Be explicit that it is your intent as your next step to involve the FOS. 2. Gather all details you can of how the ability to sell was described to your father, with particular focus on whether it was described in ways that give the impression that the cost would be small. There are at least five distinct aspects to consider: A. the way the price varies with the market at the time of sale so that the buyer gets the market rate at the time for the term remaining. Was there clear and adequate disclosure that the price on the secondary market was variable and could be expected to be lower if interest rates were lower? B. the way the price is adjusted to give the rate due as if the money was invested for the time between loan inception and the desire to sell and whether this adjustment is treating customers fairly, which in part will depend on how well it was disclosed and whether there was any misleading communication, like an email describing the cost of selling as small. C. how the adjustment in B is combined with the market rate change in A. Say the interest rates have fallen so the price that a buyer would need to pay to get today's interest rate is lower. Does the calculation first calculate that lower price then take away the difference and give it the the provision fund, then calculate the effect of changing term and apply the reduced term penalty? Or change the term and work out a penalty for that, then ignore the effect of a possible reduction in interest rate on what the buyer would need to pay to get today's market rate, giving that gain to the provision fund? I would say that calculating independently in this way would be a failure to treat customers fairly. D. how the ability to sell was promoted to your father and whether it was promoted as being low cost when it's clear that few people would consider 13.5% of say thousands of Pounds to be a small cost. E. the amount of redress due. My view is that this should be the higher of the amount sold less what the FOS considers to be a "small" fee or the amount that your father would have obtained had he used an alternative provider that had more favourable terms for early selling. This because I have the view that the email could be expected to mislead customers and that if not misled he could have chosen a different platform that may have resulted in a higher value. My view based on discussions here is that if your father received the email and invested for a longer term on that basis, an act the email clearly intended to encourage, then he has not been treated fairly and redress amounting to his loss less what the FOS considers to be a small amount plus an adjustment for inconvenience is properly due to him. And to all other customers in such a position. In addition, the Financial Conduct Authority operates a complaint system for misleading financial promotions. If your father received and acted on a promotion like that email which described the cost of selling as a small fee I suggest that you report this using that FCA facility and describe the events that followed, asking them also to pass on the complaint to the Unfair Contract Terms team so that they can consider whether they believe that the contracts involved are complaint with the legislation governing contracts with consumers. Critical to your father's prospect of success is what he was told in advance by RateSetter about whether the cost would be a small fee or not and whether any illustrations provided gave a fair and not misleading illustration of the potential capital loss from selling that a reasonable person would consider to be more than a small fee. My personal view is that RateSetter have not treated customers fairly in this matter and have used a misleading financial promotion in the form of the email to encourage customers to use the longer term investments, leading in part to situations like the one you describe. But I do not know whether your father actually received and acted on such an email or similar communication, so I do not know whether that applies in your specific case. You must investigate this yourself and find out, though you can also enlist the help of the FOS so that they can ask RateSetter to check their records to determine whether your father was sent such an email, presuming that he would then have acted in accord with its assurance of only a small fee. This is in part recognising that due to his health he might have difficulty remembering and expressing what he knew and believed at the time. As a somewhat separate matter, I suggest that you ask RateSetter to provide you with contact details for the trustees of the provision fund. Then I suggest that you use those contact details to ask the trustees to investigate whether they received any payment from your father's investment and to consider whether they really wish to receive payments in situations such as his where a sale may be effectively forced by ill health or death or whether they think that it is better to have the money go to the seller or their estate instead. You might also ask whether the trustees are RateSetter managers and sufficiently detached from the business decisions or not, so that if necessary they can seek an independent view of the matter, untainted by possible conflicts of interest over their likely belief that RateSetter was acting properly. This is in part because the fund and RateSetter are different entities with different interests, the fund being specifically to protect investors, your father being one of those investors. Naturally RateSetter may disagree with my views and not appreciate the courses I have suggested to you. Nonetheless, as a consumer and investor in this specific situation my view is that it is not likely that your father has been treated properly and that neutral outside investigation and view forming independent of both RateSetter and your father is the best way to go to determine the proper outcomes. Naturally, here it's my role to present just one side of the advocacy involved, and not RateSetter's view, which they will naturally want to express to those third parties so that well considered decisions can be made.
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james
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Post by james on Oct 30, 2015 17:50:49 GMT
A legal challenge by a billionaire activist hedge fund manager with access to an army of QCs would sort this out. Anyone? Not really needed, it'll just take well presented arguments in a specific case made to the FOS and FCA. This may be that specific case, depending on whether the father was in fact misled or inadequately informed or not. I don't know specifically so the best I can do is suggest things to investigate and who to complain to to get help if required, then to seek independent rulings on the relevant matters if appropriate.
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jimc99
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Post by jimc99 on Oct 30, 2015 22:01:08 GMT
I started this thread because the welcoming email to a new Rate Setter member was clearly wrong in saying investors in longer term loans could sell out for a "small fee". Clearly that statement wrongly encourages investment in longer term loans because in some sell out scenarios the fee is not small.
As an early investor I always knew that if I invested in a 5 year loan and sold out after say 3 years then my cash back would be reduced by the amount of interest earned at the 5 year rate for 3 years and replaced with the amount I would have earned at the 3 year rate. To me that was perfectly fair and a reason I chose to mainly invest in the 3 year market. I would be annoyed if investors in the 5 year market could sell out with no penalty as it makes a mockery of the shorter term markets.
I hope Rate Setter are taking this bad piece of marketing seriously and are taking proper steps to protect themselves from future misselling claims. Hopefully this welcoming email was the first of its kind and recipients can be contacted with the correct implications of early sellout.
Edit...Please tell me it was the first email of its kind!!!
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james
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Post by james on Oct 30, 2015 23:49:11 GMT
I would be annoyed if investors in the 5 year market could sell out with no penalty as it makes a mockery of the shorter term markets. Why on earth would that make a mockery of anything? It's completely normal to sell bonds in public markets and on other platforms in this way, with buyers and sellers agreeing a price independently from the platform. That's the normal way things are done in broader bond markets and RateSetter's approach is an unusual one. If you're not familiar with how this is done in other P2P places you might look at: SavingStream: it's completely routine for people to invest a large chunk in whatever loan is available for whatever term it has then resell to reinvest in others as they become available. SavingStream compels the price to be par, no mark up or down, the exact capital value outstanding, regardless of whether the interest rate is higher or lower at the time of sale than it was at the time of purchase and whether it's one day or four years of a five year term left. Bondora: seller sets a desired mark up or down. Platform shows the buyer the XIRR they would get, ignoring fee, if they bought and the buyer freely decides whether to invest or not. 1.5% of sale price as fee from both buyer and seller. Impaired loans can be sold. And now even defaulted loans. Ablrate: possibly the best secondary market I've seen, except that it doesn't allow selling of impaired or defaulted loans. Sellers can make offers to sell. Buyers can make offers to buy. Anyone can accept either if they want to. Marking up and down is completely fine. Or of course just look at the broader corporate and government bond markets. The way RateSetter does this is really weird and I wouldn't ever have considered some place having the notion to pick some shorter term rate and use that unless I'd read about it first. I'd expect just about everyone to be tripped up by it if they weren't warned in advance. But knowing something about how RateSetter does it, not as a proper secondary market at all ut instead selling in the main market, at least some aspect of the pricing makes sense to the point that the seller needs to match the current market price of the buyer for new loans. But RateSetter doesn't even do that, instead adding a penalty concept to the interest rate bit. But even without the term changing aspect that wouldn't be only the small fee mentioned in the newsletter unless the amounts involved or rate differences were small. Zopa shares the sell in main market aspect with RateSetter but lacks the penalty aspect on the change of term. Like RateSetter's approach I'd expect it to surprise people who expect normal public market selling that's usually found in the investment world.
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am
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Post by am on Oct 31, 2015 10:41:03 GMT
I invested some money on behalf of my Dad, fully expecting and intending to have it invested for 5 years, but with the knowledge that the option of early-withdrawal was planned. We were early adopters of RS and the higher risk of an early supporter got 5 years rates of 8.5%. Then my Dad fell, hit his head badly, got a subdural haemotoma, with less than 10% chance of recovery at his age. This was about 3 years after our initial investment. So I started to cash in his investments, thinking he'd need to get some cash together. So he'd borrowed at 8.5% over 5 years. And been paid interest at 8.5% for about 3 years. So to sell, RS looked at what he'd get if he'd lent the money over 1 year, which was about 4%, and so took back the difference i.e. 3 years x (8.5% - 4%) = 13.5%. Plus the Sell-out fee. I don't know how RS can claim that this is fair or reasonable. I've written to them and complained in this forum to no avail, so despite being an early adopter with £60K invested at one time, I'm now running down my investments and taking them elsewhere. I appreciate they don't want people to game the system, but if another lender wants your money and is happy with the rate then what's the problem. After all this is exactly how the monthly market works. An excellent example of why the RS sell out feature is flawed. Plenty of investors would love to have bought those 8.5% contracts off you at par but for some reason you're penalised. After 3 years they're supposed to switch to clawing back the interest difference between the 3 year and 5 year rates, rather than between the 1 year and 5 year rates, so I guess that you've been invested for a little under 3 years. So if you decide that you do need the money out, but not immediately, you should suffer a lesser loss (7.5% rather than 13.5%?) if you wait a few months. Edit: Sell Out appears to have been introduced in January 2013 (https://www.ratesetter.com/blog/article/new_sellout_function_and_contract_changes_blog). So it seems that one can't be more than 33 months into a contract entered on upon assurances of being able to exit at a small fee.
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niceguy37
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Post by niceguy37 on Oct 31, 2015 23:41:41 GMT
Thanks very much james for your detailed analysis & suggestions. I did consider discussing the case with the FCA, but decided that in view of my father's health and the need to look after him, it was simpler and easier to just let the investments in RS run down and use my own money if my father needed anything urgently. We invested very early on, before there was a Sell-Out feature. RS had mentioned their intention to introduce a secondary market, but not specified how it would work or what fees would be charged. I think I'd have a fair claim that they are unfair and unreasonable, but the investments are steadily running down so it's not worth pursing it now from a financial point of view. RS will gain a small amount from those forced into distressed sales, but have lost my business, and others left too when the fees were announced.
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