AJ Bell founder calls for IFISAs to be axed
Andy Bell, co-founder of the investment platform AJ Bell, has called for Innovative Finance ISAs (IFISAs) to be scrapped as part of an overhaul of the ISA market.
Bell, who stepped down as chief executive of AJ Bell last June but remains a consultant, is leading the company’s proposals.
“There isn’t any place for peer-to-peer loans in an ISA…There needs to be a control on what people do with the money,” he told the Financial Times this week.
AJ Bell’s plans also include combining cash and stocks and shares ISAs into a single product and reforming the Help to Buy and Lifetime ISAs.
Bell acknowledged that the overhaul could narrow consumer choice, but said the range of products currently on offer is too complicated.
“The proliferation of ISA products worries me. If you’ve got six ISA products to choose from, you almost give up,” said Bell in the Financial Times report. “If you were starting with a blank sheet of paper you wouldn’t design what we’ve got today.”
Read more: Exclusive: Largest IFISA providers revealed
The AJ Bell paper claims that the proposals would support the Financial Conduct Authority’s aim to encourage more consumers to start investing their long-term savings rather than holding them in cash.
Bell said that the plans have been presented to Chancellor Jeremy Hunt and that the Treasury is “alive” to these concerns, recognising that the market needs to be simplified to address the savings gap.
AJ Bell commissioned a survey which found that less than half of Brits knew stocks and shares ISAs existed, while two thirds were unfamiliar with ISA tax benefits.
Bell argues that the range of products in the market means that individuals do not understand the specific types of ISA and are unaware of the tax-free benefits.
However, the Financial Times report highlights the point that the adoption of a single ISA product would likely benefit platforms like AJ Bell, which offers a variety of investment services including cash offerings. Conversely, the plans could disadvantage banks and building societies which focus on cash ISAs and offer higher interest rates on cash than investment platforms.
Around eight million cash ISAs and 3.5 million stocks and shares ISAs were opened in the 2020-21 tax year, according to HMRC.
£781m was invested in IFISAs over the period. £552m of this was actively invested into P2P and crowdfunding loans, while £229m was kept in cash deposit accounts.
Historical research by Peer2Peer Finance News has found that actual IFISA returns over the past five years have been extremely consistent, in stark contrast to the volatility of the stock market.
By the end of the calendar year 2021, average IFISA yields were at 7.8 per cent, compared to nine per cent in both 2020 and 2019, and 8.73 per cent in 2018.
Read more: IFISA returns on the rise
