The Isa has evolved over the last 18 years into a well-established much-used and respectable financial planning tool. Cash Isas are synonymous with safety, albeit with low returns since the 2008 crash and the subsequent reduction in Bank of England base rate.
While stocks-and-shares Isas can fall in value as well as rise there have been no major Isa scandals. Certainly there has been nothing resembling the mis-selling of Sipps as shells for every kind of investment from the dodgy and daft via the idiotic and insane to the completely crooked and criminal.
All of this is about to change. The respectability of Isas is about to be lost forever.
By allowing the Isa name to be attached to peer-to-peer lending products the government has set up a large segment of the population for the next big mis-selling and mis-buying scandal. Against the backdrop of current interest rates the headline returns potentially achievable will suck in the risk-averse.
Mr and Mrs Bank-and-Building Society are about to join something akin to the panel of Dragons Den without having any real understanding of what they are getting into.
The less astute will simply fail to appreciate that the Innovate Finance Isa is as different from a boring old cash Isa as white knight to black bishop. Similarly with peer-to-peer lending via Sipps, we all know it will end in tears.
For the chancers the new peer-to-peer products will present a heads-I-win tails-advisers-pay arbitrage opportunity. They will find regulated firms willing to attach their names to the advice and the FSCS, as usual, will oil the wheels that squeak the loudest when the loans go bad.
If the government really is set on this course of action the least it can do is remove the ‘Isa’ tag. Name them Enterprise Lending Accounts instead.
I urge all advisers to write to their MPs opposing the attachment of the ‘Isa’ name to peer-to-peer lending. Likewise peer-to-peer lending via Sipps should not be covered by the FSCS, even if the advice is given by a regulated firm. Ignore this at your peril. Accept it and you had better start reserving funds now for your future FSCS levies.
Neil F Liversidge
West Riding Personal Financial Solutions