Just the Lawsuit ISA

Malthusian

This is something I've been privately stewing over as well. The IFISA label is completely pointless. P2P loans, crowdfunding loans, call them what you want, are all just fixed interest securities, which is what the "stocks" in a "stocks and shares ISA" refers to. The government could simply have allowed regulated P2P platforms to offer S&S ISAs.

Instead someone felt the need to leave their mark on a lamppost and introduce the IFISA label which serves absolutely no purpose other than to mislead investors into thinking they are opening a cash ISA.

There is absolutely nothing innovative about them except in the sense that it is an innovative way to get retail investors to participate in corporate lending to borrowers of dubious creditworthiness who are unable to obtain loans from anyone who has a due diligence process worth the name.

bowlhead99

Malthusian wrote: »

This is something I've been privately stewing over as well. The IFISA label is completely pointless. P2P loans, crowdfunding loans, call them what you want, are all just fixed interest securities, which is what the "stocks" in a "stocks and shares ISA" refers to. The government could simply have allowed regulated P2P platforms to offer S&S ISAs.

But the 'private debt' investments offered by P2P platforms within their alternative innovative finance ISAs are not listed tradeable stocks and securities and nor are they fully regulated collective investment schemes. It would weaken the offering for reputable investment fund or self-select shares ISAs to be diluted by including 'loans to private companies or intermediated loans to individuals' as an acceptable asset class.

Instead someone felt the need to leave their mark on a lamppost and introduce the IFISA label which serves absolutely no purpose other than to mislead investors into thinking they are opening a cash ISA.

Actually they have preserved the integrity of the S&S ISA brand by saying that your S&S ISA still can't hold private investments which aren't listed on a designated public market, aren't a regulated collective investment scheme etc.

The issue is that the new category of innovative finance category is (based on how the players in the space have pitched it when lobbying) promoted as being some sort of a half way house between the guaranteed FSCS depositary coverage of a cash account and at the other end of the scale, the losses of a listed company share or bond becoming worthless before you sell out. While really, the names of the ISA products are not supposed to be in some ascending or descending order of risk. ISA is just a tax wrapper for products having particular properties or features. The investments you might choose to make through your IF ISA may be riskier than mainstream pooled investments on a S&S ISA platform.

S&S investment ISAs go from gilts which are almost as safe as cash to individual AIM companies or funds that invest in bitcoins, which aren't. It is not unreasonable to say that IF investment ISAs have a range of risks too. The problem is just that people's perception of the IF products is coloured by the initial products in that area, being crowdfunded / p2p loans issued in a time of low interest rates, easy refinancing and when the country wasn't in a recession. That shouldn't preclude other 'private investment' product types being included too.


Being 'innovative' means the products might be groundbreaking but also means they can be riskier than more established financial products. The public should exercise caution, but unfortunately the public are not as self-educated as the kind of people we see commenting here like Masonic who knows what he is doing when he looks for his balance of risk and reward in a broad portfolio.

Unfortunately protecting people from themselves does stop innovation and restrict what people can buy and how they can buy it. I try to stay out of the debate because I am generally OK with caveats and risk warnings and letting people make their own mistakes - survival of the fittest etc.

I prefer risk warnings to a product not being available as I know I'm the kind of person who can read them and understand them and look beyond the small print anyway. If we allow any 18 year old to buy a share in Amazon or Tesla or HSBC without being an expert in those businesses and knowing their value could move by 80% in a year, we should allow people to invest in a series of loan parcels with an expected return of y% with warnings saying the losses might exceed the provision fund.

I could invest in this sort of stuff if they restricted it to FCA Sophisticated Investor or HNW categories as I can qualify for either. But for me to say that someone else can't have it, or the tax breaks should not be available because it makes it more mainstream, is a bit cheeky, like saying you need to have an IQ over x to vote because the others are not smart enough to be trusted, or turning 21 and saying you need to be 21 to vote or buy fireworks or drive a car even though it was fine for you to do it when you were a bit younger, because you're responsible.

Malthusian

By preserving the integrity of the S&S ISA brand they have cheapened the integrity of the ISA brand as a whole.

Cash ISAs = no risk, stocks and shares ISAs = risky. That is an easily understandable distinction and that's how it should have remained.

Creating a third category for unlisted junk bonds has muddied the waters, and when you muddy the waters, the sharks immediately swim in. (Forgive the mixed aquatic metaphor.)

If we allow any 18 year old to buy a share in Amazon or Tesla or HSBC without being an expert in those businesses and knowing their value could move by 80% in a year, we should allow people to invest in a series of loan parcels with an expected return of y% with warnings saying the losses might exceed the provision fund.

Shares in Tesla aren't promoted by unregulated introducers for 20%+ commission.

The issue is not that these securities are available, but that the Government has invited the promoters of these schemes to expand into the cash ISA market.

The "Innovative" label allows people to delude themselves into thinking someone's innovatively created a product that offers 8% returns without risk, e.g. through investment in litigation funding where the risk of loss is supposedly covered by After The Event insurance.

dunstonh

The word innovative conjours up a feeling of forward thinking ahead of the game. Perfect for all sorts of unregulated and dodgy schemes to manipulate low knowledge consumers into handing their money over.

Alexland

Malthusian wrote: »

The "Innovative" label allows people to delude themselves into thinking someone's innovatively created a product that offers 8% returns without risk, e.g. through investment in litigation funding where the risk of loss is supposedly covered by After The Event insurance.

Yes it suggests a cleverness that the customer is being a smart shopper - when they are probably mostly being dumb and greedy. I'm not against all IFISAs (hold one myself) just most of the market seems to be deliberately over simplified rubbish. Nevermind maybe there will be government action after the totally foreseeable losses occur. I wonder if the ISA savings brand will be permanently damaged?

Alex