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Scaling up the Innovative Finance ISA
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Thank you to all those who attended our 2018 edition of the Innovative Finance ISA seminar!


Our seminar dedicated to the IFISA returned in 2018 as the P2P and alternative lending industry gears up for its next stage of growth.

In the past 12 months dozens of platforms, crucially including the largest three, have finally been authorised by the UK regulator enabling them to launch a tax efficient vehicle for their investors: the IFISA. With plenty of choice, an uptick in inflation and £600bn lounging in cash ISAs the 2018 opportunity is enormous.

Take-up from investors has been somewhat muted, however, meaning it's crunch time for platforms to help both retail investors and financial intermediaries understand the asset class' benefits and risks. This afternoon seminar explored just how and why the industry can scale.

Speakers from many of the IFISA's biggest providers were in attendance, with many more in the audience. Special thanks goes to our sponsors: Taylor Wessing LLP, Funding Circle, Downing LLP, Assetz Capital and Relendex.



The IFISA: What the public thinks

Andy Davis, Financial Editor

  • Davis believes that "2018 is going to be the biggest year yet for the IFISA".
  • From the AltFi IFISA report, we learned that there is "massive ignorance out there about the IFISA". Davis notes that there is three times the likelihood that someone aged between 18-34 would use the IFISA, as opposed to ages 34 and above. However in his mind, this makes the growth potential of this product obvious.
  • 50 per cent of new money coming into platforms is through ISA products. However the biggest break on this growth is going to be ignorance: "There's a hell of a lot of education still to go."


Why investors use P2P lending and the IFISA

Martin Heelam, Assetz Capital; Julia Groves, Downing LLP; Michael Lynn, Relendex; John Battersby, RateSetter

  • Heelam says that most investors on Assetz use the IFISA with their Quick Access account. Predominantly, he expects Cash ISAs to migrate over to the IFISA, with 2300 new accounts opened, 900 of which have been funded. In terms of a target market, he says that Assetz Capital is "pretty much agnostic: anyone who's got any cash".
  • Groves notes how once one person takes up an IFISA, "it's like happy families. People all come in together." She says it was impressive when Zopa closed their doors to new investors, but "there are always plenty of places to put your money". She adds: "I really believe in transparency. We have an extraordinary amount of Independent Financial Advisors (IFAs) investing their own money... We as an industry can do better to be as transparent as possible."
  • Lynn comments that despite attempting to crack the IFA community for so long, "they're just not interested. People don't want to self-select their portfolio". He adds that there's also a "massive barrier to entry" for SIPPs, and "that's just wrong". In his opinion, "education is the way forward, but we can't do it on our own".
  • Battersby says that platforms aren't having to "crowbar" investors: "the money is already coming in". Returns on RateSetter are 3 to 6 per cent depending on term, compared to 2017 averages of around 1 per cent for Cash ISAs, and 12 per cent for Stocks & Shares ISAs, so "we can see the appeal for a middle ground product". But he also noted that having a simple model, designed to be easy for investors to access directly, is more difficult to sell to IFAs.

The first £10bn: How the IFISA can scale

Andrew Lawson, Zopa; Sam Handfield-Jones, Octopus Choice; Jonathan Rogers, Taylor Wessing LLP; Luke Jooste, Funding Circle

  • Lawson says that oversupply for some peer-to-peer lenders is "a real threat", adding that there will still be a waiting list to join the platform for the foreseeable future. Zopa is currently growing originations at around 40 per cent year on year, "so the growth is healthy and in the right kind of numbers". If it achieves a banking license, Zopa's main focus will be to "offer investors more protection" and more lending products, not current accounts. 
  • Handfield-Jones comments how despite having launched two years ago, there’s still a huge amount of focus on educating the IFA community and creating a product that works for advisors, which he says is "going to be a continuing trend". The platform has about 750 financial advisors using the platform, with "about 50 to 60 new IFAs a month, and we’re looking to double that" in less than a year. For Sam, "the biggest challenge is the mindset in the advice community around asset allocation and portfolio construction, versus cash flow modelling".
  • Rogers predicts that the IFISA is going to become a distributive channel that "every bank will want to offer to its customers". For challenger banks, it should prove relatively easy to bring on a new offering to their customer base quite rapidly. On the other hand, large institutions may take their time to see how the IFISA can fit into their framework before launching a product.
  • Jooste says that Funding Circle is making a big push in increasing the firm’s retail offering having recently expand its retail investor team. He adds that retail investor money is “more sticky and less volatile” than some institutional money (which Funding Circle has attracted much of in recent years) and that retail investors also help to build out platforms’ brands.