Purchased Life Annuity

TH1878

jamesd wrote: »

How about going and reading for yourself instead of spreading FUD? Zopa and Ratesetter are not primarily about "projects" they are primarily peer to peer lending in the form of personal loans. So far as fund comparisons go, Zopa started in 2005 and in its worst year, 2008 originated loans, lenders who were reasonably diversified still made a profit even though there was no protection fund at that time.

No UK resident individual depositor lost money in Icesave.

There is no significant chance of losing all of the money in Zopa or Ratesetter. P2P risk ranges from low to quite high, depending on the particular form chosen, with the crowdsourcing and equity side the higher end of the risk spectrum and the lending side like RateSetter and Zopa the lower risk side, a split that the FCA recognised with its decision to regulate the two parts differently.

If you want facts about how well UK investors have done during the closures of UK P2P businesses I suggest you have a look around Defunct P2x Platforms. All exits were reasonable, with outcomes ranging from a takeover by another P2P firm to lenders getting all of their outstanding money back. All but one UK closure was before FCA regulation and its mandatory winding up plan and minimum capital reserves requirements.

If that's not the risk you're claiming exists, how many high credit rating consumers do you expect to default? If you want real data, including that rather sever 2008 test, Zopa provides it in its default figures history and data dump for all loans made.

Oddly enough, I have considered all of those risks and more.

Let me know your theory for how a lending-based P2P investment can be expected to suffer a 40% capital value drop once or twice a decade and 20% drop two or three times, like UK equities. Hopefully you're not going to propose long-dated government bonds as a low risk alternative, given pricing in that market.

For the small places theft by insiders one the potential way to suffer a substantial loss. That's substantially harder for the bigger ones but not impossible.

Systematic abuse by the underwriting team is also a risk and outside P2P we've seen cases where collusion between senior underwriting people caused a loan book to have higher risk than desired while they where chasing volume-based bonus targets.

Within P2P I think that one non-UK but FCA regulated provider has engaged in investment mis-selling, lending to people who didn't meet its announced criteria (only under 25s who were young professionals, actually lent to under 25 tellers, fitters, shop assistants and such) but the resolution for that is in the future, you know the sort of remedy the FOS or FCA will require and it's not going to be losses for the investor.

For all loan-based P2P there's the risk of resale at a loss if interest rates increase, if sold rather than held until maturity. The usual bond type of risk, though lower than bonds because of the capital repayments along the way and what that does to the average duration of the money being lent.

For any involved in consumer lending there's the risk of getting mandatory paperwork wrong and the platform having to refund all interest. That could test the solvency of a platform but the assets of the lenders are segregated from the assets of the P2P firm. If the big players became insolvent for that reason it's effectively certain that another player would take over the business without substantial loss to lenders.

There's also risk like Zopa telling lenders that bad debt could be deducted from interest before tax, an incorrect claim, at least before 6 April 2015. Correcting that coincided with the 2008 events and some classes of borrower showing default rates twice as high as provided for. Even so, the interest rates were sufficiently high that those with reasonable diversification still made a profit, me included.

You clearly have some knowledge but I don't think that you have as much knowledge as you should have about this particular class of investments. If we were discussing the crowdfunding end of P2P the risks are substantially higher, with the normal startup outcomes suggesting that as few as 30% or less of startups will succeed. Security can help in those cases but it's still quite likely to be unpleasant for those who don't know the failure rates.

I clearly have some knowledge. Yes....Certified Financial Planner, Chartered Financial Planner.....Investment Management Certificate and STEP Diploma.

And I've heard it all before.... I'll say it now and remind you in a few years when a big scandal hits.....P2P is not suitable for the majority of retail investors.

Would you class yourself as a retail investor James?

TH1878

Just re-read the front page.

It's £4k !!!!!!! Go and blow it on a weekend away! Enjoy yourself.

jamesd

TH1878 wrote: »

I clearly have some knowledge. Yes....Certified Financial Planner, Chartered Financial Planner.....Investment Management Certificate and STEP Diploma.

So you're highly qualified and your knowledge is very clear from other posts you've made. How many of the risks I described were you aware of?

TH1878 wrote: »

And I've heard it all before.... I'll say it now and remind you in a few years when a big scandal hits.....P2P is not suitable for the majority of retail investors.

I described two potential scandals:

1. mis-selling loans that didn't meet the described lending criteria.

2. Zopa getting the mandatory annual statements wrong for I estimate around 30% of borrowers during the period until around 2012 and a smaller set until around mid 2014 and potentially as a company having the obligation to return much interest charged on those loans. Mainly those borrowers who overpaid affected. I think that Zopa as a business would survive this but I don't think it would be a significant capital loss for lenders even if the business failed.

I have some involvement in both. Were you aware of either of these before I mentioned them to you?

I've no doubt at all that you're very capable and I usually agree with you but so far you've given me the impression that you don't know this particular area as well as you usefully could, nor as well as I do.

TH1878 wrote: »

Would you class yourself as a retail investor James?

I'm a retail investor. Never worked in financial services in any capacity.

I'll probably be an investable assets based HNW investor (£250k+ outside home and pension) in about three years after moving much money out of the pension wrapper as soon as I sensibly can. At the moment my money is going the other way because I no longer need so much outside the pension - a year's worth of spending not required outside it for each year that passes, since I reached the ability to live indefinitely without substantial lifestyle loss if unemployed a year or two ago. Zero to around a third of a million an about nine years, courtesy of a savings rate in excess of 60% of income, with assets net of unsecured borrowing currently around 88% of total (net pay plus gross pension contributions) for the period. Zero because I spent my savings as a full time unpaid volunteer doing something socially useful and used by just about everyone here routinely. That got me my current job.

For me, P2P is in part a diversification away from equities and not into bonds, but getting equity-like returns tool. That's for P2P platforms with higher risk than Zopa and Ratesetter, but staying away from the equity-based types, I prefer VCTs for very small company investing. I expect to have around 25-40% of my assets in P2P within the next year, having started using P2P in 2008. I'm assuming that something will trigger a 40%+ major market equity drop within the next two years and want substantial assets out of the market and available for reinvestment after it happens, conscious that at any day I could choose to retire if I wanted to, with all that implies for capacity for loss if I chose to do it.

My own risk tolerance is well above the general population and I know it and factor that into what I write, though I don't have to be as concerned about what the FOS or FCA might say as you do professionally.

Boltonlass

TH1878 wrote: »

Just re-read the front page.

It's £4k !!!!!!! Go and blow it on a weekend away! Enjoy yourself.

A very constructive and articulate answer to my genuine questions. Thank you.

TH1878

Boltonlass wrote: »

A very constructive and articulate answer to my genuine questions. Thank you.

Actually, it is the most sensible suggestion you've had so far. What's more valuable, time or money?

You're welcome.

TH1878

jamesd wrote: »

My own risk tolerance is well above the general population and I know it and factor that into what I write, though I don't have to be as concerned about what the FOS or FCA might say as you do professionally.

Perhaps. The key thing here is that you know the risks and I have no problem with P2P, or any other investment, in this case.

However, Boltonlass clearly doesn't understand what risk averse means.

Boltonlass

TH1878 wrote: »

Perhaps. The key thing here is that you know the risks and I have no problem with P2P, or any other investment, in this case.

However, Boltonlass clearly doesn't understand what risk averse means.

Setting aside your patronising remark, you haven't answered my question. What do you suggest that is less risky than p2p given that I'm maxed up on isas and am maxed up to 20k on my Santander? (Or do I simply not merit a response because I have the temerity to come onto a public money forum, set up for individuals, with a query about just 4k)?

kidmugsy

Boltonlass wrote: »

What do you suggest that is less risky than p2p given that I'm maxed up on isas and am maxed up to 20k on my Santander? (Or do I simply not merit a response because I have the temerity to come onto a public money forum, set up for individuals, with a query about just 4k)?

Until you get a bit more analytical, and explain clearly which risks you are averse to, and which you are relaxed about, nobody can give you a rational answer.

TH1878

Boltonlass wrote: »

Setting aside your patronising remark, you haven't answered my question. What do you suggest that is less risky than p2p given that I'm maxed up on isas and am maxed up to 20k on my Santander? (Or do I simply not merit a response because I have the temerity to come onto a public money forum, set up for individuals, with a query about just 4k)?

No, you don't merit a response because you don't want to listen to sound advice so I'm not wasting my time on you.

I've highlighted a really obvious point in your post above that can be addressed in 19 days time.