InvestmentsJun 14 2016

Fos sees surge in Isa complaints

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Fos sees surge in Isa complaints

Complaints to the Financial Ombudsman Service about investment Isas shot up by 44 per cent in the space of a year, a Freedom of Information request has revealed.

In 2015, the number of Fos complaints against non-cash Isas stood at 1,338 - a notable increase from the 928 complaints reported in 2014.

In 2013, the number of complaints about investment Isas stood at 1,054.

According to the Fos, the largest number of complaints were lodged due to Isa providers ignoring investors’ attitude to risk, with 467 Isa holders complaining about the issue in 2015, a 67 per cent increase compared to the 280 complaints reported in the previous year.

However, complaints in 2013 stood at 651.

Perhaps some advisers are omitting the risk profile exercise on the grounds that no Isa can be mis-sold in view of the tax advantages. Blair Cann

Paolo Galvani, chairman of digital wealth management company MoneyFarm, said the figures indicate wealth managers need to do more to properly assess their client’s risk appetite.

“Part of the reason why people are under-investing in their pension is that they regularly get burnt by taking risks that they are unaware of,” he stated.

“When fund managers increase risk on investments above a level clients are comfortable with, this inevitably stores up problems for the future.”

Mr Galvani also said many fund managers fail to sufficiently spread underlying investments within their funds across multiple, uncorrelated markets; something which might be behind some of the complaints.

Yesterday (13 June) the Pensions Policy Institute (PPI) warned of potential problems with the Lifetime Isa and reported high and hidden charges attached to the new investment vehicle could reduce the value of savings pots by about 13 per cent.

Daniela Silcock, head of policy research at the PPI, said her organisation had recently undertaken modelling looking at the impact of charges which compared a 0.3 per cent charge to stakeholder charges, which is 1.5 per cent for the first 10 years then 1 per cent for every year afterwards.

“That can reduce your pot at retirement by about 13 per cent so charges do have a massive effect,” she stated.

“We’ve been trying to find out what the average charge in an Isa is and that is quite difficult to find but the cap standard is around between 1 and 3 per cent so we are looking at quite high charges compared to private pensions.”

Ms Silcock added if the UK goes down this route, it is likely that providers of Lifetime Isas will be responsible for monitoring eligibility and compliance and this will cause an extra administrative burden for providers, something which would likely be covered by higher charges for savers.

Blair Cann, financial planner at Hertfordshire-based M Thurlow & Co, questioned whether some advisers might be cutting corners when arranging Isas for clients.

“Although Isas are the foundation of any investment portfolio, as a single object it is a very expensive exercise and not very lucrative for the IFA on the basis of a 3 per cent fee,” he commented.

“Perhaps some advisers are omitting the risk profile exercise on the grounds that no Isa can be mis-sold in view of the tax advantages.”

Proviso Financial Planners director Andrew Whiteley added: “It just goes to show what a load of nonsense assessing a clients attitude to risk is if you haven’t assessed their capacity for loss.

“The FTSE 100 was down 17 per cent in February 2016 from its peak in 2015.

“With most active managers underperforming the index, that would leave a lot of equity heavy investors staring at a loss of up to 20 per cent after initial and ongoing charges; I doubt many of them signed up for that.”

katherine.denham@ft.com