Adviser guide - IFISA

GUY TOLHURST MANAGING DIRECTOR, INTELLIGENT PARTNERSHIP Introduction This guide is designed as a concise and practical day to day reference document, for easy insight into the technical, planning and legislative aspects of using the IFISA. A background on the IFISA, its place in the ISA family and an overview of the IFISA eligible investments give advisers some context on why there has been so much fuss about this new tax wrapper. Relevant case studies, and an outline of the rules give clarity on when and how an IFISA can be helpful to their clients. I hope you find that this is a useful resource over the coming months. Learning Objectives After reading this guide, advisers will: • Recognise the key differences between the IFISA and existing ISAs • Understand the rules and practicalities that govern the IFISA • Be familiar with the investment products that are eligible to be held within the IFISA wrapper • Have examples of how and under what circumstances an IFISA can be used with their clients • Be aware of the key pros and cons of using the IFISA • Have an understanding of how the IFISA can interact with other types of ISA A guide like this is rarely the product of one organisation’s efforts and we would like to thank our sponsor Downing LLP. It would not be possible to produce educational material like this without their generous support and contribution towards the production, printing and distribution of the guide. Acknowledgements JULIA GROVES PARTNER & HEAD OF CROWDFUNDING, DOWNING Alternative finance is gaining serious traction in the UK market, recently passing the £10 billion milestone - 89% of which is debt based rather than equity, according to the Cambridge Centre for Alternative Finance (CCAF) 1 , and it is now moving into the mainstream as we see with the launch of the Innovative Finance ISA (IFISA). In fact, equity crowdfunding, is not allowed within an IFISA because its risk profile is deemed too high. So, it’s the debt based alternative finance market that provides platforms offering IFISA-eligible investments, through peer-to-peer lending and debt based securities (DBS) (loan notes and unlisted corporate bonds also known as crowd bonds). And the wide range of models, terms, risks and potential returns, allow you to take as much risk as you’re comfortable with. Research suggests that one in four investors over the age of 55 would consider using the IFISA 2 . We believe there are good reasons for that. The perennial search for income could be satisfied with P2P loans or DBS, and their returns - often at around 6% p.a. - are tax-free within the IFISA wrapper for years to come. The investment is commonly either asset-backed or the investment platform may hold a provision fund, which can help manage risk; they’re uncorrelated to equity markets and, unlike bank savings, individuals can pick an IFISA that lets them see where their money is invested. It’s also worth noting that much of the investment we are talking about is funding for SMEs, and could have a very positive impact on ‘UK PLC’, so it can be a great option for those with goals beyond pure financial returns. But, high levels of investor demand could put a strain on the deal flows of any platforms without the focus and structure to identify and underwrite underlying assets worthy of their clients’ investment. As a smaller market participant, Downing applies the sort of attention to detail and due diligence that we believe individual bonds require, and we are committed to ensuring that those who invest in our crowd bonds and through our IFISA fully understand this market. We think it’s telling that, since the launch of our IFISA in March 2017, more than a third of our investor base has already opened an IFISA with us. For us, transparency is paramount and we fully support the inclusion of crowd bonds in the IFISA wrapper and the opportunities this brings to both businesses and investors. We think that advisers and paraplanners who are not fully aware of what the IFISA can bring to their clients, under the right circumstances, may be missing out on ideal solutions for them, as well as the opportunity to take more Funds Under Management. Opening Statement 1 Cambridge Centre for Alternative Finance, Enhancing Innovation December 2017 2 The Times, 20 February 2015