Providers offering the Lifetime Isa must be forced to set up independent governance committees to ensure that the product is not misused, professional trustee firm Pitmans Trustees has said.
Responding to the Financial Conduct Authority's consultation paper on the Lisa, Pitmans managing director Richard Butcher warned that the FCA paper was not taking into account the risk that users would make the wrong investment choices.
He said this was a particular risk because the Lisa was "attempting to fill two diametrically opposing roles", claiming to be both a tool for short- and medium-term investment saving towards a house deposit; and a tool for long-term savings toward retirement.
“These two objectives imply significantly different investment strategies however, and if the consumer (particularly one who does not understand investments) changes their objectives for Lisa, the strategy will no longer be relevant and may do damage to the expected outcome of long term savings," he said.
"Whilst PTL identifies the FCA’s attempts to mitigate this risk through the use of financial advice, our experience (in the context of workplace pensions) is that even with disclosure, education and relevant reminders, only a small proportion of consumers will be able to make informed investment decisions."
He said the solution to this problem was "obvious": a formal "independent governance function" that would be "built into the delivery mechanism as with workplace pensions".
He compared this to the trustee model for trust-based workplace pension schemes and master trusts, and the independent governance committees for group personal pensions.
He said these bodies were responsible for "driving value for money for members, challenging and controlling costs, ensuring core financial transactions are processed promptly and accurately and that the investment strategies are likely to be (and remain) appropriate".
Mr Butcher is not the first person to express concerns over the investment implications of the dual purpose of the Lisa.
Last week, Aegon's Steven Cameron urged the government to ban cash-only Lisas, on the grounds that if they were used as pension savings vehicles, they would condemn non-investment savvy customers to years of close-to-zero growth.
Sean Irwin, an IFA with DFP Wealth Management, said he would only consider advising his clients to use a stocks and shares Isa - even for those looking to save for a house - because interest rates are so low.
Generally, Mr Irwin was positive about the much-criticised Lifetime Isa, saying it was a product tailored to, and popular with, millennials. He said his clients, many of whom are in their early 30s, were increasingly asking him about the Lisa.
So far, only two providers have confirmed they will definitely launch a Lisa by the April launch date: Hargreaves Lansdown and The Share Centre.
