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

elacsaplau

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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,

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.
 

SBarrett

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@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?
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
www.bluewaterfp.ie
 

Duke of Marmalade

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One final comment from experience, it is a regulatory obligation to back test a product on a daily template, yes daily.
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.
 

Sunny

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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.
That is a frightening thing to hear from a financial advisor. You make it sound like 85% capital protection is the most important thing with no mention of what can be lost on the other 15% through fees, 'investment' etc etc. There are plenty of ways to get 100% capital protection with banks with strong balance sheets or saving certs etc if that is your concern. 85% capital protection is how they capture people's interest in these products. I would assume every Financial Advisor can look past that.
 

Duke of Marmalade

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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.
Absolutely!! And I presume that this is exactly how Colm got his number. If you allow for the possibility of the index being up more than 40% and that 10k is a generous evaluation of the bet, we can surely round 9/2 up to 5/1 i.e. the odds against rolling a six on a fair dice.
Paribas in a presentation to professional clients claim that they discovered an arbitrage or a mispricing or in the current metaphor a biased dice. Just how biased a dice, Broker Solutions* gave an indication in earlier brochures. They claimed to have thrown the dice 1,304 times and it came up six every time:eek: Possibly the title of this thread made them throw the dice another 1,305 times for brochure 5. The results now indicate that our dice has 4 sixes. Still a very biased dice and surely you should bite their hands off at those odds of 5/1:cool:
But something niggles at me in this narrative. My textbooks claimed that when the professionals spotted an arbitrage they filled their boots with it until it quickly closed. Not so these folks. They decided to let the great unwashed feed at this trough, and to forego the chances to make easy money on their own account. That was certainly a noble gesture but the niggle remains. They announced their discovery in 2015 and the brochures make it very clear how the arbitrage worked. To suggest that 4 years later the arbitrage is still alive and well would mean that all the other professsionals have taken a similar altruistic approach.
* Disclaimer: Other than the reference to the arbitrage all of the points in this post derive from the brochures produced by Broker Solutions and are absolutely in no way the responsibility of Paribas at all at all.
 
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Duke of Marmalade

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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?
Some valid questions there elac, but my understanding is that products are not approved* by the Regulator. I think the term used to be "freedom with disclosure", which seems to me to mean that you can produce anything you like even Bags of Hot Air as long as you present your product fairly and completely. The Regulator then takes on the role of policing how the products are presented and sold. Let's hope Colm's endeavours produce results along those lines in this situation. The revised backtest in brochure 5 is a small step in the right direction.
* An exception is where products had tax breaks such as pensions, where the Regulator/Revenue felt they could set some rules. Though these days the rules are more around the pension wrapper and it is free to invest in almost any product of its choice. I don't think in my day pension plans would be allowed to invest in the sort of product under discussion in this thread.
 

noproblem

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Just as a matter of interest can any of you whiz kids in the financial world inform us of funds that are easily available, doing well, have good exposure in the short term (5 year), don't cost a lot to invest in, to the ordinary Irish person with a few hundred grand to invest. There's bound to be a substantial no of that line of individual out there nowadays what with retirement pay offs, savings, inheritance, lump sums, etc. Most will say it has to be invested for long term but lots of the people with this type of money are getting old and investing long term is not attractive for obvious reasons. Then again the regime in this country makes people think of getting rid of their assets/cash, to sons, daughters, etc, etc, so they qualify for fair deal later on, for free this that and the other too. Surely this industry needs a thorough cleaning up and made more simple to understand for the ordinary individual.
 

elacsaplau

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Ah Duke,

That's really spectacularly unfair!

Elacsaplau has thrown his toys out of the pram and Elacsaplau is not the type of individual who will collect them and go back on his promise to desist from further contributions to this thread. This plan was all going well until your measured and reasonable post leaves many crumbs for Elacsaplau to feast on but Elacsaplau has his principles.

If Elacsaplau is a slave to such principles, one coud reasonably ask how come this post appears at all? Has, for example, Elacsaplau's life expectancy been magically extended since last night? Such questions, admittedly, do pose a real challenge. All Elacsaplau can offer is that this post should be seen as some form of an aberrant apparition, a one-for-the-road, the AAM equivalent of a Mulligan.

Why, also, is Elacsaplau using the third person singular when referring about himself? Fortunately, Elacsaplau has a more robust rationale here as Elacsaplau has decided to become LiamLawloresque in his language, as this seems to be somehow an appropriate form in this thread (see in particular post #50).

Anyway, Elacsaplau shall, accordingly, leave Sherlock (or should the er be replaced by a y?) and yourself at it! ;)
 
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Duke of Marmalade

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Elac, your withering sarcasm can lead to misunderstandings :rolleyes: Why don't you and Colm admit it was all a misunderstanding? After all Boris and Leo are all palsy walsy these days:)
 

Colm Fagan

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Just one question from me. Under the priips rules the regulator has the power to ban products (eg binary options last year). Did this come up in your discussions with the CBI?
Sorry for the delay in getting back to you. I don't claim any expertise on consumer protection rules (the last 25 years of my career was spent more at the "wholesale" rather than the "retail" end of life assurance). I wasn't aware the regulator had that power. In any event, the regulator was very much in listening mode with us. They never told us (nor did we expect them to tell us) what action they would be taking on foot of what we told them.
 

elacsaplau

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I have it on very good authority that both the design and distribution of insurance/investment products were often not transparent 25 years ago - resulting in poor outcomes for consumers. Poor consumer protection then.

This thread is principally about the non-transparency of a current product - likely to lead to poor outcomes for consumers. Poor consumer protection now.

Personally, I would not be deferential to those responsible for consumer protection in Ireland who have presided over a ineffective system for far too long. So who watches the watchman?

Well, it may not be perfect but the Finance Committee has done a good job at upping the performance of the Central Bank in terms of protecting banking customers. I would suggest that in relation to this case a referral to the Finance Committee is warranted. It offers the prospect of genuine progress in this matter.
 

Bronte

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Another fund manager to watch


One of the world's leading fund managers has been forced to resign after the BBC discovered he had broken investment rules.
 
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