In relation to adult Isas - for the over-16s in the case of cash Isas and over-18s for stocks and shares - Brian Morris, head of savings policy at the Building Societies Association (BSA), says any taxpayer considering a saving product may benefit from an Isa.
Ian Highton, financial life planner at Leicester-based Essential Financial Advisers, says cash Isas are suitable for everyone and are therefore the first exposure investors have to this tax efficient savings vehicle.
Mr Highton says with stocks and shares Isas suitability depends on the investor’s attitude to risk. However he adds given that a stocks and shares Isa can now be structured with investments that have a broad range of risk profiles, advisers can actually make this type of Isa “fit most people.”
He says: “From Corporate Bond right through to Emerging Markets, advisers and providers can put something together to suit everyone.
“With modern platform technology, we are now in a much better place to match the underlying risk of a Stocks & Shares Isa investment to the client.
“The difficulty in the past was that people saw Isas and Peps and Tessas as a good thing and made use of the cash element and thought once invested they could not touch the substantial cash balance they have built up.
“Because of the tax advantage they thought they couldn’t touch that. What you are faced with now is people who have saved up tens of thousands of pounds cash balances that they are doing nothing with and effectively earning negative returns.
“For those clients wanting to take an increase in the level of risk with a proportion of their money, it [stocks and shares Isa] has been a way to improve their returns with potentially only marginal increases in risk they are exposed to.”
However Peter Shipp, director of investment schemes for the Tax Incentivised Savings Association (Tisa), says some cash Isa products may be in fact ‘structured deposits’, so clients need to be aware that there are risks.
Mr Highton says he has seen some structured deposits recently that have pay-outs that are linked to the performance of just five stocks within the FTSE 100.
He says: “If I was to ask somebody to invest some money in just five companies and if, in five years time, those companies share prices have gone no lower than a set percentage… people just wouldn’t do it. It is like doing an accumulator bet.
“You might argue that as advisers structured products have their part but we have a questionnaire we introduced a while back that asks more questions about the sorts of things that are going to cause people concern – things like the use of derivatives.
“If people do not understand the terminology then they already have an aversion towards it and as an adviser we have to be mindful of that. My worry is a lot of these things, if they have just been advertised with a headline percentage return in the press, a proportion of people think it looks good and they want it.
“Cash plays its part but five years or so of poor returns means people want more and will ask the question of how they can get more from their investment.”
