Author Topic: Exit strategy now that Folio Investing Note Trader service has been shutdown  (Read 11387 times)

TWLMG

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My wife and I each have an IRA with Prosper.com. I've been happy with Prosper and have added to it each year. I've never used the note trading part of Prosper, but I knew it was there if I ever needed it. Now that it has been shutdown, I'm concerned about an exit strategy when something should happen to us. I don't want my trustee to have to wait five years for all my loans to mature to be able to get to all the money. I've search the web, but I don't see anyone else asking this question. I would think it would be on a lot of people's minds. With no note trading option, how can someone liquidate their Prosper investment without waiting for all the loans to mature? Is your estate really going to have to sit around and wait for all your notes to mature to be able to get to all their inheritance.
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Rob L

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My wife and I each have an IRA with Prosper.com. I've been happy with Prosper and have added to it each year. I've never used the note trading part of Prosper, but I knew it was there if I ever needed it. Now that it has been shutdown, I'm concerned about an exit strategy when something should happen to us. I don't want my trustee to have to wait five years for all my loans to mature to be able to get to all the money. I've search the web, but I don't see anyone else asking this question. I would think it would be on a lot of people's minds. With no note trading option, how can someone liquidate their Prosper investment without waiting for all the loans to mature? Is your estate really going to have to sit around and wait for all your notes to mature to be able to get to all their inheritance.

I have the same question and know of no other answer but to wait it out (you or your heirs). However if Folio was able to facilitate note purchases and sales between individuals I'd think it must be a legal transaction. If one could find a buyer there should be some legal way to sell to them. Breaking new ground for sure. I am not a lawyer and am certainly not giving legal advice, merely speculation. Meanwhile I'm just waiting it out.

Debt Free

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Hopefully your notes are not your only investment.  If they are not, then an option could be to allocate the entire portfolio to an individual, and then other assets to other heirs.  Example:  Your house valued at $200,000, equities/MF IRA#1 $300,000, Prosper IRA#2 $100,000, property $70,000, cash $30,000.  Number of heirs = 4.  Total value = $700,000.

Sale of house and property gives you $300,000 in cash, IRA#1 $300,000, IRA#2 $100,000

Heir #1 receives $75,000 portion of IRA#1  +  IRA#2 = $175,000
Heirs #2-4 receive $75,000 portion of IRA#1  +  $100,000 cash = $175,000 each

Heir #1 can then manage the notes account from then on.
« Last Edit: February 24, 2017, 12:47:23 PM by Debt Free »

Rob L

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Hopefully your notes are not your only investment.  If they are not, then an option could be to allocate the entire portfolio to an individual, and then other assets to other heirs.  Example:  Your house valued at $200,000, equities/MF IRA#1 $300,000, Prosper IRA#2 $100,000, property $70,000, cash $30,000.  Number of heirs = 4.  Total value = $700,000.

Sale of house and property gives you $300,000 in cash, IRA#1 $300,000, IRA#2 $100,000

Heir #1 receives $75,000 portion of IRA#1  +  IRA#2 = $175,000
Heirs #2-4 receive $75,000 portion of IRA#1  +  $100,000 cash = $175,000 each

Heir #1 can then manage the notes account from then on.

It isn't the only asset and sounds like a good plan.
I would need to research the best characteristics of heir #1; young, old, low income, high income, etc.
Heir #1 might be forced to take small minimum annual cash distributions which could generate expensive withdrawal fees.
What if there were not enough cash in the account to comply in a given year?
Guess I haven't thought this through at all. Need to get on it.

Debt Free

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Well, theoretically it will take 3-5 years to unwind the account.  First RMD is most likely the decedent's estate.  No charge for RMD ACH withdrawals / distributions.  (Oops!  Forgot this was referring to Prosper.)  Big unanswered question is what happens when balance drops below $10,000.  Guessing $100 annual fee will kick in.

Between this issue and declining returns, I am among those looking to unwind / move now rather than later.  Just opened my first account (taxable) at U-Haul Investors Club.  No IRA fees there, minimums, or withdrawal fees.  Smaller returns, but no real concern about charge offs.

Fred93

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I'm concerned about an exit strategy when something should happen to us. I don't want my trustee to have to wait five years for all my loans to mature to be able to get to all the money.

But that's the way it is.  There is presently no alternative. 

The average dollar weighted wait time is about 1 year.  Money comes out faster than you might imagine.  Sure the last dollar doesn't come out until 5 years are up, but most of the money comes out much sooner.

Debt Free

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Sure the last dollar doesn't come out until 5 years are up, but most of the money comes out much sooner.

Which brings up another question I've pondered.  I have multiple accounts with LC including two IRA's.  Regardless if it's an IRA or taxable account, let's say you unwind the entire account cashing it out and then closing the account.  What happens if LC collects on charged off accounts?  You've zero'd your account out and it's closed.  Some of your charged off notes have been collected on.  What would LC do with your share of the collection?

... Whoops, I just realized I hijacked a Prosper thread.  Sorry. ...
« Last Edit: February 24, 2017, 06:25:42 PM by Debt Free »

TWLMG

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I'm trying to decide whether to add my 2016 Roth IRA contribution to Prosper or Schwab. I've loved Prosper for two years now, even with all their insane business practices, but if my trustee has to wait five years to get all the cash, I don't think it's a prudent investment for me anymore. I know it's not a liquid investment, but it was nice to know there was the Folio exchange if it was ever needed. Yes, you may need to take a discount, but if needed, that would be acceptable. Is everyone else okay with this scenario when you die? It doesn't matter if it's an IRA or taxable account, your family can't get to the money when you die.
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Debt Free

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You know, it probably wouldn't hurt to discuss it with any of your potential heirs to get their thoughts.

Honestly, I began in LC in late 2013.  Seems like just yesterday.  As some have alluded to, just because you invested in 3 or 5 year notes does not mean they will remain to maturity.  If you shift to 3 year notes only now, before long your 5 year notes will be gone.  Then if reinvestment is stopped, with normal attrition between defaults and prepays, I'd say maybe 70% of the account may unwind in 2 years or less.  I am picking numbers out of the air though.  Others here may have more accurate numbers.

TWLMG

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This is a quandary I don't like to be in, but I like Prosper enough to give them another year of my wife's and my Roth IRAs. I've looked into Lending Club and they do allow IRA accounts to trade notes on FolioFN. I'm just hoping that Prosper gets their act together and brings back FolioFN or some other option to liquidate an IRA if desired. If they don't get their act together, maybe Lending Club will end up buying Prosper out. I just don't want to open a Lending Club account, take the time to learn all their quirks and then slowly transfer funds from Prosper to Lending Club since I've finally gotten Prosper working smoothly for me. Sorry, but I'm lazy. I know these notes are note liquid, that's the whole point of this investment class, but since Lending Club offers it, I want it from Prosper as well. Since we're in our early 50s, I know lots of changes will be happening to both of these companies over the coming years. I just hope these changes are things that are better for the retail investor.
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TWLMG

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I posted my original question on another forum as well since the Lend Academy forums don't get the activity I'd hoped for. I got this interesting response tonight. Does anyone else have experience with this? Do you have the paperwork hurdles and/or transfer delays?

I have both taxable and Roth IRA accounts with both Prosper and Lending Club. The accounts have been active for several years, and after all this time and all the research I have done, I can say this with all confidence... Having a P2P lending IRA account is one of the worst investments you can make. A taxable account is fine, since you can withdraw the funds any time as the payments are made. With an IRA, it is a nightmare to get your money out, especially with Prosper. At least Lending Club has a Transfer option that allows you to skip one step in the withdraw process.

Either way, be prepared to fill out confusing forms, which you must have notarized and mailed to the lending platform and to the custodian. And then, you can only get whatever cash is laying around idle at the time. It can take up to four weeks for the transfer. If you want to take more money out the following month, you have to start all over and fill out new forms. If you allow your balance to dip below $10,000, then you get hit with a $100 anual maintenance fee, which you will be paying for as long as the account is open.

I urge anyone reading this to reconsider before opening a P2P lending IRA, or contributing any more money to one.
All your gains will get gradually wiped out when you stop buying new notes, and your pile of idle cash continues to accumulate, earning absolutely nothing for about 5 years. It is a lousy investment indeed.

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panther02912

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Thanks for the warning!

AnilG

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I recall that I harped about this same issue several times in last few years on this forum and shared my concerns about not opening IRA accounts with P2P Lending Platforms. I most probably in minority of lenders who never opened an IRA account with these platforms. You might have found these messages if you searched the forum.

July 07, 2014 Regular account or IRA? http://forum.lendacademy.com/index.php/topic,2433.msg20874.html#msg20874
July 31, 2014 Thoughts for retirement savings (case study) http://forum.lendacademy.com/index.php/topic,2535.msg21813.html#msg21813
October 23, 2015 IRA strategy for P2P - Traditional or Roth and why? http://forum.lendacademy.com/index.php/topic,3473.msg30894.html#msg30894
April 02, 2016 Want to open IRA with 5k, but I already put 1k into current IRA http://forum.lendacademy.com/index.php/topic,3733.msg33400.html#msg33400

I posted my original question on another forum as well since the Lend Academy forums don't get the activity I'd hoped for. I got this interesting response tonight. Does anyone else have experience with this? Do you have the paperwork hurdles and/or transfer delays?
« Last Edit: April 20, 2017, 02:58:11 AM by AnilG »
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sensij

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I moved my IRA to Lending Club this year.  I consider the bonus they offered to just be a reimbursement of the costs that will eventually be incurred to close the account.  I'm glad you've shared your painful experience though, it helps me feel prepared.

Debt Free

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I talked to LC a few weeks ago regarding IRA accounts and winding them down.  They stated that in the case of the owner receiving RMD's after retirement that they will continue covering the $100 fee even after the balance drops below $10,000.  It wasn't in writing, but they recognize the issue.

Now for an account liquidation and transfer, that would be a different issue.