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?
Tracker Bond Performance
- Thread starter kateball
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Steven Barrett
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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.
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.
M
mercman
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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.
Steven Barrett
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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!!!!!
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!!!!!
Steven Barrett
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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.
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
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
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!
Steven Barrett
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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
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!!
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!!
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.
Steven Barrett
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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.
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.
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.
LDFerguson
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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.
Steven Barrett
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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!
) promoting 4 different trackers!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.
Steven Barrett
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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.
As I said before, if you don't understand what your money is going into, don't do it.
LDFerguson
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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.
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...........
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...........