Modernising the ISA market
Brian Bartaby, chief executive of peer-to-peer property platform Proplend, explains why the time has come to modernise the ISA market by promoting the IFISA…
DESPITE offering inflation-beating, tax-exempt returns, Innovative Finance ISAs (IFISAs) are still widely misunderstood. And not just among the general public. Wealth managers, accountants, aggregators and independent financial advisers have all demonstrated a reluctance to recommend the IFISA, which frustrates peer-to-peer lenders such as Proplend.
“I think advisors are concerned for a couple of reasons,” says Brian Bartaby, chief executive of Proplend. “One is they are still quite attached to cash ISAs, but they also struggle with the IFISA because they know the client can just go and do it themselves. So that cuts them out a bit.”
However, the benefits of the IFISA are undeniable, and Bartaby believes that the biggest risk to the IFISA market is that existing ISA holders realise what they’re missing, and suddenly start pouring their money in.
“The most dangerous thing that could happen is suddenly the world wakes up to the possibility of the IFISA,” he says. “If just 10 per cent of the cash ISA market moved into the IFISA overnight, it would drown the P2P lending market because that’s nearly 10 years’ worth of combined P2P lending in one hit.”
With stock market volatility and the risks associated with Brexit, there is a concern that this could happen sooner than expected. And according to Bartaby, the industry is not ready.
“I think that the aggregators struggle with it,” he says. “They just don’t see enough income to warrant what they’re doing.
“Also, there are so many different P2P business models that it is difficult for them to compare IFISAs on a like-for-like basis, and then compare those against cash or stocks and shares ISAs on a risk-adjusted basis. And that’s an industry problem, not just an ISA problem.”
Proplend’s IFISA offerings follow the exact same structure as its non-ISA products. There is an auto-lend function on its lowest risk loans, and all of these loans come with a 50 per cent loan-to-value cap. This means that the property’s value would have to fall by 50 per cent before the underlying investment is at risk. These loans have a target return of five per cent, although Proplend’s auto-investing lenders have earned an average of 6.61 per cent.
Unlike many other P2P lenders, Proplend offers a flexible IFISA, so investors can make withdrawals and repay that withdrawal without affecting their annual ISA allowance. These investors can also transfer existing ISA holdings into the Proplend IFISA within days, depending on the ceding provider.
“I think we’re regarded as one of the quickest and most efficient at doing that transfer process,” says Bartaby. “Other providers take three or four weeks to complete their transfers.”
To date, Proplend has lent more than £55m and returned approximately £5m in interest to its investors. Bartaby estimates that around 25 per cent of the platform’s investments have been made through its ISA, underlining its huge potential.
But modernising the 20-yearold ISA market presents a singular challenge. When it comes to promoting the benefits of the IFISA, Bartaby believes that the onus should be on everyone – not just the P2P platforms or the adviser community.
“It’s a financial product that the public should know about,” he says. “It’s something that should be on everyone’s radar.”