Consolidation – getting IFISAs onto mainstream platforms
One concern was that the Innovative Finance ISA wrapper is yet to become widely available on mainstream platforms, creating a pain point for advisers in making their workflow easier to manage. An adviser present at the showcase suggested that this leaves IFISAs “10 years behind the ISA market”, a comment supported by results from AltFi’s own IFISA report which showed widespread ignorance about the wrapper among the general public.
Julia Groves, partner and head of crowdfunding at Downing, responded: “The margins we are working on are incredibly skinny, and the traditional platforms and research firms all take a little cut. It’s not impossible to put IFISAs on mainstream platforms, but our aim is to be more transparent, leaner, and to get a better return for the investor. If we’re competitive with the banks, we’ll get the good businesses, if not, we’ll get the shuck of businesses.”
Continuity – how will these investments perform through economic cycles?
As peer-to-peer and debt-based securities lack a substantial historical track record, an issue arises on how to assess past performance of underlying investments. Many platforms use central bank data on bank lending to consumers and businesses to get a historical perspective, but peer-to-peer lending has so far outperformed the underwriting and return performance in consumer lending to date.
“There’s loads of Bank of England data going back to the 60s and 70s that shows how interest rates, charge off rates, and bank debts have performed favourably over not one, but three economic cycles,” said Jake Wombwell-Povey, CEO at Goji. “It's not directly appropriate to any given IFISA platform, but in the economy at large, you can see how bank lending, which is what we are all trying to disrupt, has performed.”
Certification – what’s needed to advise on the IFISA?
Ewoud Karelse, head of tax advantaged investment at Tilney, raised the issue that advisers aren’t required to sit the CII’s J12 module (a certificate in securities advice and dealing) in order to advise on IFISAs in peer-to-peer lending.
Groves pointed out that the qualification is still required for recommendation of bonds in an IFISA, but that Downing itself offers a lending service where it picks and manages the bond portfolios so that a J12 isn’t needed.
However she added that “this is only for about a dozen IFAs. The vast majority meanwhile opt just to introduce their clients to the platform and let clients pick their own investments, rather than going the J12 route.”
Compliance – how the compliance world views IFISAs
Providers at Intelligent Partnership’s showcase agreed that not enough has been done to ensure compliance departments fully understand the protections available for investors, and the risk profiles of IFISAs. As such, the IFISA is often deemed to be a high risk product by compliance officers, even if advisers themselves don’t deem it to be high risk.
“The higher risk category of investments is too blanket a reason for advisors to have to avoid investments that are right for their clients,” said Gillian Roche-Saunders, partner at compliance specialist Bates Wells Braithwaite.
“Any investment that is not listed, liquid and generally vanilla is going to be put into that high risk factor category. Compliance teams need to understand that the real risk to be managed is more nuanced than that.”