The IFISA (Innovative Finance ISA) only went live in April 2016, after being first announced in the 2015 budget. There has understandably been a lot of fuss over this new tax wrapper, as investors seek to diversify away from the volatility of Stocks and Shares ISAs, and the miniscule returns of Cash ISAs that fail to keep up with inflation.

The IFISA wrapper allows tax free investment in debt-based alternative finance, through P2P lending and Debt Based Securities (DBS) or Crowd Bonds as they are being commonly referred to. Although the wrapper is a nascent area, investor sentiment is strong – one in four investors over 55 would consider using the IFISA.

In response to the buzz surrounding IFISAs, Intelligent Partnership’s IFISA Showcase took place on February 28 at the London Stock Exchange. The event gave a forum for industry experts in the IFISA space to discuss issues that are top of mind, and gave financial advisers in the audience an opportunity to compare investment providers and their offerings.

The following gives a brief summary of the IFISA showcase:

Gillian Roche-Saunders, partner at compliance specialist Bates Wells Braithwaite, gave the first presentation of the event. Her expertise in compliance regarding alternatives gave a unique lense on the IFISA landscape. She focused on the requirements to be an IFISA manager, and the prerequisites to advise on this product.

Roche-Saunders said:

“The IFISA has had a fairly low uptake up till now, as some providers were struggling to get regulated by the FCA. But 2018 will be a big year for the tax wrapper, as all of the major providers are now regulated.”

She went on to discuss how advisers should select P2P investments for their clients:

“With P2P, it’s not always comparing apples with apples with the the default rate – you have to take into account the quality of the platform and its methodology for calculating projected returns, for example. You also have to look at how late payments and defaults are handled – difficulties can occur as there are a lot of laws around not pressuring people for payment.”

Five fund manager presentations followed:

Goji

Jake Wombwell-Povey, CEO at Goji, spoke about Goji’s direct lending platform, and was keen to stress that the company is not a lender and is purely an investment manager.

Goji offers two key propositions: Diversified Lending – which has a one year holding period and a targeted return of 5%, and Renewables Lending – with two portfolios, one with a three year holding period and 6% return, and one with a five year holding period and 7% return.

Wombwell-Povey said that Goji’s Diversified Lending Bond aims to generate returns that are uncorrelated to mainstream assets, give higher returns than cash savings, and are less volatile than traditional fixed income investments.

The Renewable Lending portfolios target a 6-7% return from financing UK renewable energy via 39 projects in areas such as solar, wind and anaerobic digestion.

Wombwell-Povey added: “Due to the diversification present in our portfolios, in the event of a downturn of the economy, we don’t expect massive losses.”

Downing LLP

Julia Groves, partner and head of crowdfunding at Downing, spoke about the diverse range of businesses that can be held within Downing’s IFISA. The underlying companies tend to be relatively mature businesses and include solar energy, onshore wind, hydro power, community pubs, care homes and anaerobic digestion.

Groves illustrated how the IFISA can be utilised by investors via a collection of case studies.

Groves also warned the audience of financial advisers of what to look out for in a provider:

“Not all platforms are equal, you’ve got to think about where the money ends up. You have to look for skin in the game – what’s the rate the borrower is paying vs the rate the lender is paying? That’s a good indicator of risk.”

If the spread is too wide, is the investor being asked to shoulder more risk than their return merits?

She added that Downing is very much focused on tangible assets – specifically, “something you can kick”.

Triple Point

Belinda Thomas, head of sales and marketing at Triple Point, spoke about the Advancr product and how investors could access over 60,0000 underlying investments that are uncorrelated to traditional asset classes.

She said that 73% of the underlying investments in the Advancr products were allocated to SME leasing, and that a significant portion of the leasing was dedicated to chip and pin machines.

Thomas said that there was a significant problem with investors simply holding their savings in cash ISAs, stating: “You are being hammered by inflation in a cash ISA.”

In terms of fees structure, Thomas explained that Triple Point doesn’t charge platform fees and gains fees from equity profit return.

She also explained how Triple Point incentivises advisers in this space:

“We support the adviser community by having rates 50bp higher than if the investor came direct.”

Octopus Investments

Caroline Flagg, business development manager at Octopus Investments, spoke about the investment manager’s Octopus Choice solution.

Flagg noted that 75% of advisers in Octopus’ ISA market survey said that some of their clients were holding too much in their cash ISAs relative to the rest of their portfolio. She also said that only one in six investors expects to invest in a Stocks and Shares ISA in the 2018-19 tax year, due to concerns over volatility in the stock market.

The Octopus Choice IFISA targets a regular interest rate of 4% per year, without the stock market volatility. The product is a managed portfolio of property-backed loans.

Flagg said that providing liquidity was top of mind for Octopus:

“We want to provide liquidity to investors. As of yet, it’s never taken more than seven days to withdraw funds.”

Flagg also addressed the concern of the duration of the underlying loans. She said:

“It’s quite an expensive way of borrowing money, so companies tend to want to pay back quickly.”

Assetz Capital

Martin Heelam, director of lender relationships at Assetz Capital, spoke about his platform’s IFISA which was launched in December 2017. He touted Assetz Capital’s one year net returns of 10.2%, and three year net returns of 25.6%.

Heelam said that one of the differentiators of the platform is that lenders are not charged fees. Instead, Assetz Capital takes fees and/ or a margin on the interest paid by the borrower.

He added that Assetz Capital has £240m of live loans on its platform.

So all in all it was great to get this first event away in what is set to be a growing area of interest for investors; our role in all this is to ensure financial advisers and wealth managers are informed and confident enough to have a discussion with their clients about the IFISA itself and the range of opportunities available.

If you weren’t able to make it to the event you can download a complimentary copy of our Advisers Guide to the IFISA, kindly supported by Downing. You can also head over to our Research Hub and watch interviews with each of the presenters.