Nothing works better at aiding understanding than stories based on experience
Stories have been used to pass knowledge and wisdom down the generations throughout history. For advisers, they help remove the complexity of what we do for clients. And nothing works better than stories based on experience.
Over the past few months, I have experimented with peer-to-peer lending and Bitcoin, as I like to test drive new things in the finance world so I have a personal story to share with clients. I have also unintentionally become embroiled in a banking scam. But more on that later.
Let’s start with my peer-to-peer lending and Bitcoin experiments.
I chose to invest with Funding Circle because it is one of the big players, and lends to small and micro businesses. The amount was £2,000: the minimum to give a sufficiently widespread risk and a degree of predictability over likely returns, according to its blurb.
According to the stats, my expected gross return is 10.5 per cent, falling to 7.2 per cent after fees and bad debts. Not a bad return, and I could live with the level of fees and losses. That said, my actual return after nine months has been quite different, with my current annualised return after fees and bad debts at minus 1.2 per cent. Well, someone has got to be in that bottom 5 per cent of returns.
To be honest, I do not actually mind the loss, as it gives me something concrete to talk about.
My Bitcoin experiment was something else. First up, I had to get my head round blockchain and open an account/wallet, which was a step into the unknown.
Then I had to try and purchase some Bitcoin. It was not as easy as the twitterati would have you believe. I discovered I had to buy my Bitcoin from a Danish bank. How much was a prepared to lose? I settled on £800, wired the funds and kept my fingers crossed for the four days it took for a fraction of a Bitcoin to reach my blockchain wallet.
The following week, my £800 had fallen in value to almost £500. I held on and two weeks later it was worth £900. I took the profit (although if I had held my nerve it would have been worth closer to £4,000 for a short while).
Bitcoin is not an investment that follows any of the valuation metrics I understand. It is supply and demand working alongside pure speculation. When I sold I had another nail biting few days before the money reached my bank account.
Separately, I almost became a victim of banking fraud in the past few weeks. I sent a random tweet about good service from Bank A and poor service from Bank B, mentioning Bank C. Later that day, someone from Bank A called me to offer help in switching my personal account from Bank C.
I was busy and suggested he called later to discuss in more detail. I tweeted about the excellent proactive service by Bank A. But Bank A saw it and called to say it was not them that called. They blocked my account until I verified I had shared no details.
We have been playing cat and mouse with the fraudster this week, and he is now in contact with my “PA” (a fraud investigator at Bank A) about transferring my accounts.
I do not think I would have fallen for it had he called the second time and I had not been alerted by my bank. But I cannot be sure; it is easy to say that in hindsight. What it does show is how resourceful fraudsters are. Another great story to relate to clients.
Dennis Hall is managing director of Yellowtail Financial Planning