Diary of a Private Investor - structured product too good to be true

I agree. It would be great if the product producers could address the various questions and concerns. The ultimate product producer is BNP Paribas. They have insisted on a blood-curdling disclaimer on page 4 of the brochure: "This document has not been reviewed, approved or otherwise endorsed by BNP Paribas or any of its affiliates and BNP Paribas accepts no responsibility in relation to the accuracy, completeness or adequacy of the information included herein." There's more of the same. If that's not enough to frighten you off, I don't know what is. Why don't BNP Paribas and/or MMPI come onto this forum, or any of the other fora in which I've raised these questions, to allay any concerns actual or potential investors may have? I know they've read the articles, but they've made no attempt to contact me.
 
Colm,

You have very serious concerns regarding a product being marketed and distributed by a company being regulated by the Central Bank of Ireland.

In my opinion, it's very simple. I believe that you should share those concerns with the Regulator.

This matter requires a formal investigation, as follows:

1. Is what you are saying correct?

2. If yes, how did such a product become approved and what needs to happen to ensure that other similar products are not being marketed now and that other similar products do not become available in the future?

3. Who sold this products on behalf of Broker Solutions - including what checks did these intermediaries complete in order to satisfy themselves of the merits of this product?

4. How are impacted customers to be compensated for all this breakdown in consumer protection?
 
As one of the ordinary Joe Soap's out there in this financial no no land I would like to thank, Colm, White Coat and the Duke for some very insightful and eye opening information on the dangers that await the uninformed, or the lightly informed. I can only imagine the quantities of hard earned money that's taken away from people in all of this, with most investors probably innocent victims of these immoral tactics. Many thanks.
 
@elacsaplau Brian and I shared our concerns with the regulators. It's up to them to decide what to do. Obviously, it's not the job of the regulator to prevent poor value products from being sold. Financial advisers have a vitally important role to play, analysing products to see if they offer good value for their clients. If they can't do that analysis, are they in the right business?
 
Colm,

Good that you reported it. That was the right thing to do.

The gist of this thread is that terrible financial chicanery is happening. What has been presented here (taking the thread at face value) is tantamount to fraud or at least highly deceptive, clearly inappropriate and wrongful practices.

The Regulator has a definite consumer protection responsibility so this, very much, is the job of the Regulator to sort out, as described.
 
Colm Fagan said:
@elacsaplau Brian and I shared our concerns with the regulators. It's up to them to decide what to do. Obviously, it's not the job of the regulator to prevent poor value products from being sold. Financial advisers have a vitally important role to play, analysing products to see if they offer good value for their clients. If they can't do that analysis, are they in the right business?
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Colm, the first 4 helpings of this product stated that they backtested the Solactive European Deep Value Select 50 Index over 1,304 times starting in 2009 and found that on all 1,304 occasions it finished above its initial level after 5 years and so 40% was the minimum return on 100% of backtests.
Now (in a fit of conscience?!) on the 5th incarnation they decide to double the number of backtests going back to 2004 and now we see that there were 830 occasions on which it would have finished below its initial level after 5 years.
Can this Damascene conversion be a mere coincidence? Or has the Regulator taken up your cause?
 
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Duke
I suspect that the visit Brian Woods and I paid to the CBI may have influenced Broker Solutions' decision to change the back-tests to the slightly less favourable ones shown in the latest version of the product. We'll never know. I'm not sure it will do much good though. The back-test results are still a long way from what we believe is the real probability of the product delivering a positive return to investors.
 
elacsaplau said:
The Regulator has a definite consumer protection responsibility so this, very much, is the job of the Regulator to sort out, as described.
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I'm not the greatest fan of the regulator, but it's not their responsibility to do the job of the financial adviser. The adviser gets paid for researching the market, checking the claims of the various providers and deciding whether a product is suitable for clients. The back-test results for this product are presumably correct in so far as they go, and the brochure states that the past is not a reliable guide to the future. Nothing wrong in all of this. The index is one of the weirdest creations I've ever seen and caused alarm bells to ring immediately I saw it. Should an adviser be able to pick this up? You tell me.
 
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Colm Fagan said:
I'm not the greatest fan of the regulator
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Well, we agree on the above anyway! I don't like the rest of your post much, however - it's far too narrow in its reach!

From the CB website....

"The Consumer Protection Directorate (of the Central Bank) aims to deliver on its consumer protection mandate in the context of three important desired consumer protection outcomes:
  • a positive consumer-focused culture that is embedded and demonstrated within all firms;
  • a consumer protection framework that is fit for purpose and ensures that consumers’ best interests are protected; and
  • regulated firms that are fully compliant with their obligations and are treating their customers, existing and new, in a fair and transparent way"

If you think the CB has achieved its own objectives in relation to the creation and distribution of this product, well...……..you are entitled to your opinion! ;)
 
RedOnion said:
Mel, in the interest of disclosure of any conflicts, is this a product you've been selling to clients?
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Hello Red Onion, in the interest of disclosure and transparency, I don't divulge my firms' business dealings and practices with people who are not disclosed and transparent but I will say this, since the last financial crisis, I would give any financial instrument serious consideration which had an 85% level of capital protection from a financial institution with the balance sheet of BNP Paribas.
 
elacsaplau said:
I don't like the rest of your post much, however
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So you don't like me saying that the adviser should research the market, check the claims of the various providers and decide whether a product is suitable for clients. Interesting.
Mel Shanley said:
I would give any financial instrument serious consideration which had an 85% level of capital protection from a financial institution with the balance sheet of BNP Paribas.
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.. even if independent experts have assessed the chances of making money from the product at about 1 in 6? Interesting too.

Are you both financial advisers?
 
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The regulator did a themed inspection of structured retail products back in 2016. They focused more on the complexity of products that didn't have a guaranteed deposit element.

Inspection finds firms offering more complex and risky Structured Retail Products to consumers

Press releases published by the Central Bank of Ireland.
www.centralbank.ie www.centralbank.ie


There are a lot of mandated disclosures on these products (tracker bonds in CPC). It looks like all the boxes have been ticked in this one.

But the fact remains, these products are all 'smoke & mirrors', and there's a lot of commission made on them.

For 100k invested, 85k is put on a zero rate deposit with a bank. 4.5k is commission, split between broker and product producer (now we know why brokers love them!).
There's a bit for fees, admin and regulatory compliance - let's call it 500. Then an unknown amount is invested in an option based on a stacked index. Let's give everyone the benefit of the doubt and say it's the full 10k remaining. So, there's a 9 to 2 bet on the index having a higher value in 5 years.

Sounds fantastic, right?

But, someone is happy to take the other side of that bet; a European bank that's better equipped to assess risk than Joe Soap talking to his broker who read a brochure produced by a vested interest.
If this was a one way bet, it wouldn't be available. It's priced to reflect a 4 in 5 chance of not getting your full money back!
Edit: should read 5 in 6 chance of not getting your full money back.
 
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Thanks @RedOnion. Your assessment that there's a 4 in 5 chance of not getting your full money back is close to my estimate (more correctly, Brian's) of it being a 5 in 6 chance.
 
Colm,

Ok, it's half-time and I welcome this diversion! I already explained why your post was disappointing.

In relation to your incorrect comment about my desire to not hold financial advisers to account, please refer to post #45 where I specifically highlighted the need to investigate the checks and role performed by financial advisers in all of this. You should read other people's post before commenting - even if they are not using their real names!:rolleyes: On a serious note, it's a little irritating that you completely misrepresent what I said.
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Anyway, do you understand the CBI's mandate? If so, can you explain how each of its three key consumer protection goals, as quoted (please refer to post #53), were addressed in relation to this product and as set out in post #45 (please read it), what changes need to be made to properly protect consumers? I take it that you understand that all firms means, well, all firms! I take it also that you understand that consumers were not well protected here.

It would also be helpful if you explain the purpose of your visit to the Central Bank. The way you are portraying it now is like this crowd developed a really terrible product and that your main concern is that financial advisers are selling it!

I remain convinced that the much broader approach suggested by me (including, as you have missed it previously, the role of financial advisers) is better.

I admit it was probably a mistake on my part engaging with you earlier (past performance is not necessarily a guide to the future but it is informative). My main purpose in commenting (please read post #45) is that I believe that consumers were not adequately protected, as previously stated, in...…..
elacsaplau said:
….relation to the creation and distribution of this product
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Finally, please note that I have adequately answered your questions. It will be interesting to see if you will do likewise......I won't be holding my souffle - past performance and all that! ;)
 
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Wow! There's someone who's upset. We spoke to the CBI about a number of aspects, one of the key ones being the back-testing which showed a 1,304/1,304 success rate and a worst back-testing result of +40%. That was Series 4 (and all other series, I think). Series 5, which is essentially the same product, shows a 1779/2609 success rate and a worst result of -16%. I hope that our intervention contributed to the change in presentation of back-testing results. A change in the right direction.
 
Colm Fagan said:
Wow! There's someone who's upset. We spoke to the CBI about a number of aspects, one of the key ones being the back-testing which showed a 1,304/1,304 success rate and a worst back-testing result of +40%. That was Series 4 (and all other series, I think). Series 5, which is essentially the same product, shows a 1779/2609 success rate and a worst result of -16%. I hope that our intervention contributed to the change in presentation of back-testing results. A change in the right direction.
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Colm,

If you took the time to consider properly what I wrote, you would realise that I was addressing the specific and systemic issues involved in all of this. Otherwise, the issue that you are supposedly so exercised about will continue to recur.

I was disappointed that, not for the first time, you misrepresented what I said - so I was obliged to go to the trouble to explain my viewpoint. Admittedly, the very definition of futility! Anyway, as I said, it was my mistake for engaging with you. Fool me once, past performance, etc., etc....
So this will be my last post on this thread - life really is too short.

Your latest reply is characteristic in two respects of my sense of your typical responses to me:

1. There is no denial that you misrepresented me. Instead, we get a silly "Wow! There's someone who's upset." Crucially, no apology; and

2. The non-addressing, as predicted, of specific questions - I told you I wouldn't be holding my souffle.
 
Colm Fagan said:
@elacsaplau Brian and I shared our concerns with the regulators. It's up to them to decide what to do. Obviously, it's not the job of the regulator to prevent poor value products from being sold. Financial advisers have a vitally important role to play, analysing products to see if they offer good value for their clients. If they can't do that analysis, are they in the right business?
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I can't do the analysis to the level that you do. But then, I take the approach that these are extremely complex products that most people don't understand. And if you don't understand it fully, you shouldn't be advising people to invest in it. And if an investor doesn't understand it fully, they shouldn't put their money in it.

For full disclosure, in 2009, I advised my dad and my uncle to invest some of their ARF's into the New Ireland Secure Advantage fund, which is a structured product (it was an available fund, not a stand alone product and no commission for placing their money in it). They both did very well out of the fund but that was it for me.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Mel Shanley said:
One final comment from experience, it is a regulatory obligation to back test a product on a daily template, yes daily.
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Mel, you're new in these parts, welcome to the bear pit :cool:
The PRIIPS regs require the first four statistical moments of the fund performance to be assessed from daily observations of price movements over the previous 5 years. In that context there are genuinely 1,304 independent daily observations. The backtests in the Secure Accumulator brochure are completely different. These suggest that 1,304 five year periods have been backtested. That would require observing more than six and a half thousand years of current market dynamics.
Your website says that you are a Financial Trainer of 10 years' standing, I trust that you appreciate the difference between the two situations.
 
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