Financial advice looks unlikely to be mandatory for people taking up a Lifetime Isa, after the Financial Conduct Authority made no mention of it in a consultation paper released today (15 November).
Instead, the FCA has put the onus on providers to warn consumers of the risks at the point of sale.
The consultation paper lays the ground for the regulation of the new savings wrapper, set to be launched in April next year.
Announced by former chancellor George Osborne in March, the Lifetime Isa, or Lisa, will allow people under the age of 40 to begin saving £4,000 a year, plus a 25 per cent government bonus, towards either a first home or their retirement.
At no point in the FCA's 48-page document is the role of financial advice mentioned.
However, the regulator had a great deal to say about information product providers should give their customers.
The FCA said this should include "specific risk warnings" on the loss of the employer contribution if people are opting out of auto-enrolment.
Providers would also have to provide specific warnings on the 25 per cent penalty applied on early withdrawal.
On the danger of auto-enrolment opt-outs, the regulator said:
"[A] potential source of a reduction in retirement resources could materialise if investors opt out of pension auto-enrolment, or cease active membership once they have been enrolled, to use their individual contributions to fund a LISA instead.
"In doing so, they would forgo their employers’ contributions, and suffer a direct monetary loss", the paper read.
However, the paper added it was "not reasonable" to predict what effect the Lisa would have on opt-out rates until the product was launched.
The FCA also flagged a "mental accounting" danger, that could "hinder investors from adequately considering future retirement incomes in comparison to the more ‘visible’ wealth that can be accumulated in the Lisa and other ISAs".
The regulator also proposed a 30-day cooling-off period, whereby investors would be able to close their Lisa without incurring the 25 per cent penalty.
Hargreaves Lansdown, one of the few providers to have stated they will launch a Lisa in April, welcomed the paper.
The firm's head of retirement policy Tom McPhail said: "The FCA is clearly mindful of the importance of good, clear communication around the Lisa.
"The measures they have proposed here look sensible and are consistent with the types of financial education and communication we have been developing for LISA investors ahead of launching in April next year.”
Alastair McCarey, an independent financial adviser at 2Plan Wealth Management, said the Lifetime Isa was not on his "advice radar" for a number of reasons, and was therefore not surprised the FCA had not focused on the role of advice in the Lisa.
He said for clients in the top tax bracket, it made no sense to opt for a retirement product that would give them a 25 per cent tax break, when pension tax relief gave up to 45 per cent.
He added that the penalty on withdrawal was "quite severe".
"All these things are quite dangerous from an advisers point of view. They could lead to complaints," he said.
He added that the majority of his clients were over 40, and therefore ineligible for a Lisa.
james.fernyhough@ft.com
