Failure to Understand the Innovative Finance ISA

Scratching our heads: why don't people understand the IFISA?

The IFISA, which lets UK investors hold peer-to-peer loans in a tax-free wrapper, is an ugly duckling nobody loves, according to Moneywise magazine. We disagree. We think the IFISA is only just beginning to show its true worth.

What's the evidence for the prosecution? We'll quote from the article, shared between Moneywise and Money Observer today.

failed to gain much popularity...

"Peer-to-peer Isas failed to gain much popularity in their first year, while the amount held in cash Isas fell by nearly £20 billion.

"Just 2,000 Innovative Finance Isa accounts were opened in the tax year 2016/2017, according to the latest statistics from HMRC."

The article then moves to a section headed: " Understanding the risks of peer-to-peer lending".

    We always encourage our readers to understand risks at Another Crowd.  But our first rule is: risk is not a word that means 'run away'. And we don't like the implication that the Innovative Finance ISA is unpopular because people think it's too risky. 

    There's a very simple reason why hardly any IFISA account were opened in 2016/17. There were hardly any products on the market. The Financial Conduct Authority (FCA) set a rule that any platform offering an IFISA product had to be fully authorised - and the authorisation process was diligent and, in many cases, long-winded.

    Add to that a well-known statistic that the ISA market peaks at the end of one tax year and the start of another, and it really isn't much of a surprise that most investors looked at the market, and decided to wait until more choices were on offer. This has only just started to happen, a few months into 2017/18.   

    The main beneficiary of the IFISA market in its first year seems to have been Abundance Investment. They launched an IFISA in April 2016, with a very clear message of "investments that build a better world" that appealed to a niche of investors. CEO Bruce Davis explained his firm's good fortune in an interview with P2P Finance News last March.