# Tracker Bond Performance



## kateball (17 Sep 2013)

Does anyone know how well tracker bonds have performed. We see an awful lot of advertising of new bonds but  we never see how  well they have performed when they mature. Would be great if the banks went public on their performance record.... does Central Bank keep a record or anyone else?


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## Steven Barrett (17 Sep 2013)

See the stats I posted in the ZL bond thread. 

Personally, I don't agree with them but they do massive business in Ireland. 

If you don't want investment risk, put it on deposit. If you want the potential growth of the stock market, put it in stocks. In most cases, trackers only give you your money back. If I told you I'd give you a portfolio that would lose you anywhere between 1% - 3% every year, would you invest in it? That's the risk you are taking with inflation in this bonds. And all fees are paid up front too.


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## mercman (17 Sep 2013)

SBarrett said:


> And all fees are paid up front too.



It's the fees that kill funds. The main winners in funds are the companies that run the funds. A proven point that should be noted by all invested in funds.


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## kateball (18 Sep 2013)

Hi Sbarrett
I cant find ZL thread? - can you post it here
thanks
Kate


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## Steven Barrett (18 Sep 2013)

Hi Kate

I was on the ipad last night and it's a bit more difficult to flick about. The stats are from iCubed. Not sure if he has them on the public part of his site but he is very thorough.

50 tracker bonds matured in 2012. Here are the stats on their performance:

Top Performer: Wealth Options Prospector:
98% return over six years; 12% p.a.

19 products matured with 0% return - 38% of all trackers
14 less than 0.5% p.a. - 28% of all trackers
Average of 50 was 0.96% p.a.

66% of all trackers that matured in 2012 earned a return of 0.5% p.a. or less!!!!!


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## Steven Barrett (18 Sep 2013)

mercman said:


> It's the fees that kill funds. The main winners in funds are the companies that run the funds. A proven point that should be noted by all invested in funds.



Mercman, in the few days I've been posting on here and reading posts, it is abundantly clear that fees are a bug bear with you. 

I don't mind paying management fees on my investments because I don't have the skill, expertise or time to research companies to the level that fund managers do. 

They also have to pay light, heat, staff etc so they have to make their money somewhere and they largely do it through management charges. Then a huge amount of people won't pay adviser fees, so it is taken through commission which is only more expensive for them in the long run.


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## kateball (18 Sep 2013)

Thanks sbarrett

So 2 out of every 3 every trackers gave close to zero return -  Does this mean that the banks and the brokers kept the interest - from what i remember you could have earned 5% pa or more on deposit 5 years ago.

Is this a misselling scandal or does is the Central Bank know how bad these products are?

Its funny that we only ever see the ads and we never see the actual performance until now!! 

Thanks for posting

Kate


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## Jim2007 (18 Sep 2013)

kateball said:


> Thanks sbarrett
> 
> So 2 out of every 3 every trackers gave close to zero return -  Does this mean that the banks and the brokers kept the interest - from what i remember you could have earned 5% pa or more on deposit 5 years ago.
> 
> ...



The asset managers make their money from the fees and nothing else.  The thing about these products is that the gains on one side are usually wiped out by the losses on the other side, so you more or less always end up in the same position!

There is no misspelling in the product itself, it's just a bad product like many other consumer products.  Now if someone one tries to sell you this product by tell you something else then that is a different matter!


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## Steven Barrett (18 Sep 2013)

kateball said:


> Thanks sbarrett
> 
> So 2 out of every 3 every trackers gave close to zero return -  Does this mean that the banks and the brokers kept the interest - from what i remember you could have earned 5% pa or more on deposit 5 years ago.
> 
> ...



It's not misselling at all Kate. People just don't understand what they are buying. I see a conflict between someone not wanting to take any risk and then putting them in an investment that buys equities, gold, commodities etc.

An example of how a tracker bond works:

€100,000 investment

€85,000 goes on deposit for 6 years
€7,000 is paid in fees to broker and product producer
€8,000 is used to buy an option in whatever the bond is based on, we'll say stock.

The producer has negotiated a deposit rate with a bank to ensure that the €85,000 is worth €100,000 in 6 years time. 
If the value of the stock is higher in 6 years than it is today, they will exercise the option and you get a higher return. If it's not, they won't exercise it and you get your money back. 

The cost of options has increased over the last few years, so there are a number of changes made to the product. I reviewed one recently that offered a capital guarantee up to a fall of 35%. If it fell by more than 35%, the client was on their own. The reason people invest in these things is they want security and this bond was pulling away the safety net when they needed it most!

Never, ever invest in something that you don't understand. If you use an adviser, don't be afraid to ask him. Afterall, you are paying him for advice.

Steven


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## kateball (18 Sep 2013)

Not misselling -  Really??

I saw products offering headline rates of 

EARN UP TO 10% pa  and 
QUADRUPLE  the growth!!!

And the customer just got their money back - when they could have a got a guaranteed 5% pa from a fixed deposit. Oh I forgot trackers pay commission!!


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## Jim2007 (18 Sep 2013)

kateball said:


> Not misselling -  Really??
> 
> I saw products offering headline rates of
> 
> ...



Kate,

There is a very big difference between you being giving all the information about a product and you fail to understand it on the one hand and being given false information on the other hand in order to get you to invest in the product.

No disrespect, but based on your questions here I'd suggest that before you go investing any of your hard earned money, you take the time to full educate yourself on what is involved before you do.  Never feel that you must invest right now or you'll miss out - that is not the case, there will always be plenty of investing opportunities out there.


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## Steven Barrett (19 Sep 2013)

kateball said:


> Not misselling -  Really??
> 
> I saw products offering headline rates of
> 
> ...



You will find Kate that there are lots of warnings and * on the documents to cover themselves from misselling. 

I agree with your last paragraph. If you don't want risk, stick it on deposit. You will always know what return you are getting. Don't try to get the best of both worlds, no risk and equity returns. It doesn't work.


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## kateball (19 Sep 2013)

Jim  At a time when there were fixed rates of 5% available in the market  - the only purpose a tracker bond served was to generate commission and fee income to brokers and bankers. This is misselling if ever there was. 
The banks could offer customers 
(1) Fixed Deposit of 5% pa - which generated zero commission / fees for distributors
or
(2) Tracker bond with potential to earn up to 10% or zero . (knowing the chances of getting 10% was zero!)

Banks chose to aggressively market tracker bonds over fixed deposits purely to increase fee income and commission payable to brokers and brokers.

Dont start blaming customers when there was and still is a cosy cartel going on. Ive yet to meet a broker or banker who has put a cent of their own money into one of these products and that's the ultimate test.


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## LDFerguson (19 Sep 2013)

kateball said:


> (2) Tracker bond with potential to earn up to 10% or zero . (knowing the chances of getting 10% was zero!)


 
I don't invest in tracker bonds myself and I don't arrange them for clients, for broadly the same reasons Steven Barrett has mentioned above.  

But you're going too far to call it mis-selling.  The chances of getting 10% or whatever were not zero - they just required a specific set of market circumstances to occur for them to return their 10%.  That set of circumstances was always set out in the brochures. 

The probability of such circumstances occurring was, in many cases, quite low.  It wasn't zero as you suggest.

Of course banks marketed tracker bonds more strongly than deposit accounts - tracker bonds were and are more profitable for them than deposits.  Banks operate to make as much profit as possible from each customer.


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## Steven Barrett (19 Sep 2013)

Just got my post and there was an unsolicited letter from a tracker bond provider (who also sent me an unsolicited agency application when I got CB approval ) promoting 4 different trackers!


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## Jim2007 (19 Sep 2013)

kateball said:


> Jim  At a time when there were fixed rates of 5% available in the market  - the only purpose a tracker bond served was to generate commission and fee income to brokers and bankers. This is misselling if ever there was.
> The banks could offer customers
> (1) Fixed Deposit of 5% pa - which generated zero commission / fees for distributors
> or
> ...



Hi Kate, 

Within the eyes of the law, misspelling is something very specific and this is not it!

Even with the best will in the world, no government can regulate or control all aspects of consumer affairs - there will always be bad products out there whether it be financial or otherwise.  Whether it's fair or not you are the best person to manage your money especially when it comes to big ticket items such as house, car, investing and so on.  Don't rely on others to do so because it is very likely you'll be disappointed...

Jim.


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## kateball (19 Sep 2013)

Some of these trackers are wrapped in life policies with another layer of charges. In those circumstances I assume the capital is not even guaranteed? 
I wonder who regulates that product package?


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## Steven Barrett (19 Sep 2013)

You always have to look at who provides the guarantee. Usually it is a big bank. If they fail, the guarantee is gone. 

As I said before, if you don't understand what your money is going into, don't do it.


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## LDFerguson (19 Sep 2013)

kateball said:


> Some of these trackers are wrapped in life policies with another layer of charges. In those circumstances I assume the capital is not even guaranteed?
> I wonder who regulates that product package?


 
If it's a life company providing the outer wrapper then the Central Bank is the regulator.  But if the tracker bond within the wrapper goes bust, the wrapper provider doesn't compensate you.  

A word of warning about such arrangements - in theory a broker can choose to take commission from both the wrapper provider and the tracker provider, essentially being paid twice for the same sum of money.  Such commissions must be disclosed, but personally I think that this level of double-charging shouldn't occur.


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## kateball (19 Sep 2013)

So if 2/3 of tracker bonds are producing returns below 0.5% pa -  those investors who went into the pension wrapped versions of trackers will presumably have suffered a loss given the additional layer of charges/commissions. 

So now we have "guaranteed" products producing losses for pension/ARF clients. Meanwhile the banks, the pension companies and brokers have all got well paid!!I'm sure this isnt the last we've heard of this...........


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## Spinner2 (20 Sep 2013)

*Double dipping....*

"A word of warning about such arrangements - in theory a broker can choose to take commission from both the wrapper provider and the tracker provider, essentially being paid twice for the same sum of money. Such commissions must be disclosed, but personally I think that this level of double-charging shouldn't occur." 

Liam,
Are you sure? I thought the reason "double dipping" worked was that only the LifeCo commission was subject to disclosure and the bold boys involved can take commission from the deposit tracker on the quiet.


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## LDFerguson (20 Sep 2013)

Spinner2 said:


> "A word of warning about such arrangements - in theory a broker can choose to take commission from both the wrapper provider and the tracker provider, essentially being paid twice for the same sum of money. Such commissions must be disclosed, but personally I think that this level of double-charging shouldn't occur."
> 
> Liam,
> Are you sure? I thought the reason "double dipping" worked was that only the LifeCo commission was subject to disclosure and the bold boys involved can take commission from the deposit tracker on the quiet.


 
I don't sell trackers so I'm not sure, to be honest.  As far as I know, trackers can fall into one of two camps - life company trackers which are subject to normal disclosure rules and deposit trackers which, as you say, would be subject to less disclosure.  In the end of the day, if someone is setting up a financial product for you, it's a fair and reasonable question to ask a straight question - "How much are you getting for doing this job?"


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## Steven Barrett (20 Sep 2013)

I've only been on here about a week and there certainly is a bad impression of financial advisers. 

Some of us do actually work for our money, have our client's best interests at heart and in return, are expected to get paid for the work that we do...just like everyone else. 

A lot of people think advisers are out to screw people on commissions yet on the other hand there's people who expect advisers to work for free and only pay them if they purchase a product off them. How about paying someone for the job you asked them to do i.e. give you financial advice. That way they don't need to try to sell you a product to get paid. 

Rant over

Steven
www.bluewaterfp.ie


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## kateball (20 Sep 2013)

Spinner2 said:


> "A word of warning about such arrangements - in theory a broker can choose to take commission from both the wrapper provider and the tracker provider, essentially being paid twice for the same sum of money. Such commissions must be disclosed, but personally I think that this level of double-charging shouldn't occur."
> 
> Liam,
> Are you sure? I thought the reason "double dipping" worked was that only the LifeCo commission was subject to disclosure and the bold boys involved can take commission from the deposit tracker on the quiet.



If brokers are getting paid on the double then the lifeco and the tracker provider must be facilitating this. Does everyone just turn a blind eye to commission of up to 8% on an ARF?

And now we have just found out these bonds produce zero/negative returns after locking customers money away for 5 years.

This is shocking


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## Steven Barrett (20 Sep 2013)

kateball said:


> If brokers are getting paid on the double then the lifeco and the tracker provider must be facilitating this.* Does everyone just turn a blind eye to commission of up to 8% on an ARF?
> *
> And now we have just found out these bonds produce zero/negative returns after locking customers money away for 5 years.
> 
> This is shocking



Can you get 8% commission on an ARF?!!!! With who?


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## kateball (20 Sep 2013)

Hi SBarrett - No disrespect but are you reading the last few threads?
This packaging of a tracker inside a lifeco product is facilitating brokers getting paid on the double. 

The lifeco pays 5% commission (disclosed) and the tracker provider pays another 3% "on the quiet".  When the tracker brochures says "available as an ARF or personal pension"- Happy days - 8% commission!!! 

Must be time for RDR!!!


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## Jim2007 (20 Sep 2013)

kateball said:


> And now we have just found out these bonds produce zero/negative returns after locking customers money away for 5 years.
> 
> This is shocking



You mean you've just found out!  Had you been following the discussions for the past several months or taken the time to use the search function, you'd beware that general consensus is that you should avoid these bonds like the plague!

In deed this time last year you were banging on about tracker bonds as well, so  I fail to see how you could suddenly be so shocked about!


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## mercman (20 Sep 2013)

SBarrett said:


> Some of us do actually work for our money, have our client's best interests at heart and in return, are expected to get paid for the work that we do...just like everyone else.
> 
> A lot of people think advisers are out to screw people on commissions yet on the other hand there's people who expect advisers to work for free and only pay them if they purchase a product off them.



Look I have written enough posts on AAM as to how the public have being ripped off by the Investment Community. The entire thing is an absolute scandal. Top, Middle and Bottom. I could write a book on how I've been ripped off. 

It really does boil down to the fact that people working on commission earnings in Ireland are going to rip you off -- simple as that. The law in this country is scandalous.  It makes it easy for the Financial Providers to empty the pockets of the average Joe and get away with it.


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## DerKaiser (21 Sep 2013)

SBarrett said:


> I've only been on here about a week and there certainly is a bad impression of financial advisers.
> 
> Some of us do actually work for our money, have our client's best interests at heart and in return, are expected to get paid for the work that we do...just like everyone else.
> 
> ...


Don't take it personally! 

The rants are about fees these days, in 2008 you had an outcry over the incompetence of fund managers (amidst the biggest upheaval sice the Great Depression!). Funnily enough, after five years of rising markets, I have yet to see a thread with someone saying how well their funds have performed. At the moment, most people who have contributed to a pension over the last 15+ years have done really well.

The whining minority will always outshout a satisfied majority.

Bashing the financial sector is like bashing farmers, teachers, civil servants, etc. you can't just label an entire segment of society as rip off merchants. It's an ill informed generalisation to the point of insult.


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## Steven Barrett (21 Sep 2013)

kateball said:


> Hi SBarrett - No disrespect but are you reading the last few threads?
> This packaging of a tracker inside a lifeco product is facilitating brokers getting paid on the double.
> 
> The lifeco pays 5% commission (disclosed) and the tracker provider pays another 3% "on the quiet".  When the tracker brochures says "available as an ARF or personal pension"- Happy days - 8% commission!!!
> ...



I haven't seen any ARF product offering 8% even with a tracker wrapped in an ARF. Maybe it's because I haven't been looking in the murky places. 




mercman said:


> Look I have written enough posts on AAM as to how the public have being ripped off by the Investment Community. The entire thing is an absolute scandal. Top, Middle and Bottom. I could write a book on how I've been ripped off.
> 
> It really does boil down to the fact that people working on commission earnings in Ireland are going to rip you off -- simple as that. The law in this country is scandalous.  It makes it easy for the Financial Providers to empty the pockets of the average Joe and get away with it.



I agree with you to a degree. The financial world works in percentages. Add to that, insurance companies pay an insane amount of commission to get the business. For example, a €500,000 ARF can result in €20,000 in commission. There is no way that an advisor is going to do that amount of work but is he going to turn it away? 

On the fee side, a retirement takes a hell of a lot of work. Is a client prepared to pay €8,000 in fees when there is the option of letting the adviser get €15,000 and they get an additional  €5,000 added to their pot? 

On the consumer side, I have lost count of the amount of times that people have asked me to do work for them and then refused to pay for it. It takes a lot of time to do this work, why should payment be a commission at the end of it? But that is what a lot of people think. If I do nothing it's free work, if I buy something they get paid. And guess what? The adviser always finds something that they need to buy!

That is why since setting up my own company, I am fee based. If you come to me for advice, I will charge you for it. That way, I can give you independent advice. If I believe a product is the best way to solve your problem, I will recommend it and reduce/ offset the fee. Everyone knows where they stand that way. 


Steven
www.bluewaterfp.ie


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## Steven Barrett (21 Sep 2013)

DerKaiser said:


> Don't take it personally!
> 
> The rants are about fees these days, in 2008 you had an outcry over the incompetence of fund managers (amidst the biggest upheaval sice the Great Depression!). Funnily enough, after five years of rising markets, I have yet to see a thread with someone saying how well their funds have performed. At the moment, most people who have contributed to a pension over the last 15+ years have done really well.
> 
> ...



I don't take it personally, I've been on internet forums long enough to understand how it goes.  

I was surprised about the feelings about advisers on this site though. People looking for free financial advice from lots of qualified and unqualified people. 

I can imagine what 2008 was like. I still have clients hanging onto their AIB shares after telling me that they could do better than those fund managers! 

Even today I've heard people reject advice to invest in Bangkok Bank because it sounds dodgy and suggest loss making Bank of Ireland instead!


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## kateball (21 Sep 2013)

Jim2007 said:


> You mean you've just found out!  Had you been following the discussions for the past several months or taken the time to use the search function, you'd beware that general consensus is that you should avoid these bonds like the plague!
> 
> In deed this time last year you were banging on about tracker bonds as well, so  I fail to see how you could suddenly be so shocked about!



Jim 2007 -  Am not sure what your contribution is adding to this debate??

We have just discovered that 2 out of 3 trackers that matured in 2012 have produced returns < 0.5%. This means that many ARF and personal pension clients in these so called capital protected bonds, lost more than their capital. When you compound this to the availability of double commission, - that's whats shocking!!


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## LDFerguson (21 Sep 2013)

We appear to be having a rather one-sided debate here. Nobody is arguing that tracker bonds in general are a good investment product. Nobody is arguing that a salesman taking double commission on a wrapped tracker is a good thing. 

@kateball - you wrote a post last year about the issue of double commissions on wrapped tracker bonds last year that Jim2007 linked to above. 

There have been countless threads here on Askaboutmoney pointing out that tracker bonds in general are a poor idea, from an investor's perspective. Brendan Burgess has made a few complaints to the Financial Regulator or Central Bank about how some tracker products were/are marketed. There's a Key Post about them here in the Investments forum. 

Aren't we just going over old ground here? The only new information I see in this thread is the reference to the iCubed stats that show that 2/3 of trackers returned the capital guaranteed amount. After everything that has been written about them here over the years, is that a big shock?


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