Steven Cameron, Pensions Director at Aegon said: “While the Chancellor is keen to see the introduction of British ISAs, under the FCA’s Consumer Duty, providers must design products which offer value with a specific target market in mind. The proposed British ISA could raise challenges here as it will have a particularly narrow target market.
“The British ISA is expected to appeal primarily to individuals who already fully use their existing £20,000 ISA allowance.
“Even for individuals ‘maxing out’ their stocks and shares ISAs, there are questions over the appropriateness of increasing exposure to UK equities rather than a more geographically diversified portfolio. The Consumer Duty requires advisers to avoid causing foreseeable harm which will prompt consideration of past and anticipated future relative performance.
“Given the narrow target market, the British ISA looks like a very niche product. Furthermore, the Consultation Paper highlights the many new considerations in offering it within what will become an even more complex wider ISA regime. With a maximum annual subscription of £5000, it could prove very challenging to cover costs while offering this product at a charge level that provides value for money.
“While the Chancellor’s aim of encouraging greater investment in UK companies is understandable for UK economic growth, this needs to be weighed up against what’s in individuals’ best interests. A specific new product may not be the right way of going about it. Another option with much wider scope would be to disclose exposure to UK equity investment upfront and more prominently. This could be disclosed alongside other important aspects including investment risk profile and wider asset allocation approach. Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals.
“This could extend beyond ISAs to other products, most notably pensions. With the Chancellor also proposing workplace pension schemes disclose the proportion of their funds invested in UK equities, it will be essential that the definitions and language used are fully consistent to avoid confusing consumers.”
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