Adviser guide - IFISA

7 The IFISA landscape The ISA (Individual Savings Account) is the UK’s most popular tax-wrapper. In 2016/17 alone, 11.1m ISAs were opened and £62bn was invested. It’s estimated that the total market value of all ISAs is £595bn (Source: HMRC). Of course, for most advisers it’s one of the first opportunities that is examined for almost all clients. However, this positive overall picture hides some flaws in ISA saving. Every year, the vast majority of new ISA subscriptions are for cash ISAs (typically 3/4s of all new subscriptions). This is driven by investors’ aversion to stock market volatility, but it exposes them to the risk of the purchasing power of their savings being wiped out by inflation: interest rates have been so low for so long that the returns on cash ISAs are tiny. People are waking up to this and last years’ new ISA subscriptions actually fell by £18bn compared to the previous year, driven by a drop in cash ISAs. The inference is that savers are ditching low- paying cash ISAs for the higher returns yielded from investment-based wrappers such as Stocks and Shares ISAs and now the IFISA. IFISAs were launched in April 2016. They were introduced to encourage the continued development of the market in alternative finance, driving new ways of funding SMEs and small infrastructure projects. Alternative finance includes funding models like peer-to- peer lending and debt based securities that emerged in the period after the 2008 financial crash when banks reduced their lending activity. The EU Basel regulatory frameworks, including Basel III, currently in an implementation period due to last until 2019, require banks to hold significant amounts of capital against risky assets as security against potential financial shocks and asset failures. This has increased the cost of lending, making it increasingly unprofitable for banks to make small ticket loans of £250,000 or less, or higher risk transactions, such as loans to SMEs. ISA AMOUNTS SUBSCRIBED DURING THE YEAR (CASH ISAS) 31 OCT 2015 P2P firms under interim permissions submit applications to the FCA for full authorisation 6 APR 2016 IFISAs go live NOV 2016 IFISA opens to DBS and first DBS platform launches IFISA FEB 2017 First P2P platform launches an IFISA APR 2014 Pre-existing UK P2P platforms become FCA regulated under interim permissions DBS platforms already fully authorised IFISA at a glance IFISA launched April 2016 UK AltFi Market £10 billion IFISA returns 4-8% tax free 60+ IFISA authorised managers expected inflows 2017/18 Up to £1bn P2P Loans & DBS are IFISA eligible risk profile between cash and S & S ISA IFISA provides extra consumer protections FCA Fully regulated £18bn drop Cash ISAs last year = low interest/rising inflation SOURCE: INDIVIDUAL SAVINGS ACCOUNT (ISA) STATISTICS, HMRC, AUGUST 2017 high RISK low P2P & DBS asset backing or provision fund protections ISA Limit £15,000 £15,240 £20,000 2014/15 £BILLIONS 20 10 0 30 40 50 60 70 80 90 2015/16 2016/17 £61 bn £59 bn £39 bn OPEN THE IFISA LANDSCAPE