Octopus Choice has forecast a year-on-year decline in Innovative Finance ISA (IFISA) inflows, as financial advisers prefer its general investment account.
Unlike most P2P platforms, Octopus Choice has a strong IFA network that recommends its products to investors, helped by the brand recognition of its parent company Octopus Investments and the fact that it was built with independent financial advisers (IFAs) in mind.
Charlie Taylor, head of the property lender, told Peer2Peer Finance News that its IFISA inflows are set to drop from £24.9m during 6 April 2018 to 16 February 2019 to £18.6m during the same dates in 2019/2020.
Read more: Advisers and ISAs
“We have doubled down on financial advisers as our target customer and they tend to use our general investment account rather than the IFISA,” said Charlie Taylor, head of Octopus Choice.
“This means that an even greater proportion of our inflows now fall outside of our IFISA, which explains the difference from this year to last.”
Many IFAs advise clients to use stocks and shares ISAs rather than IFISAs, according to Taylor.
“Lots of advisers will recommend that clients use their annual ISA allowance to invest in a stocks and shares ISA as that’s typically where there is the most potential for tax-free growth,” he said.
“Some advisers will also have clients with large cash ISAs portfolios who want to take investment risk to get a better return.
“However, we still find there is a reluctance to make ISA transfers as they’re worried it’s going to be a big hassle.
“Our job is to show them that it doesn’t have to be!”
IFAs have traditionally been reticent to recommend P2P investments to their clients, due to the relative nascence of the industry, the lack of Financial Services Compensation Scheme protection and a few high-profile platform collapses.
“For financial advisers, stocks and shares is a mainstream asset class, while P2P is much newer and has been in the news recently, so it’s possible there is a section of financial advisers who would rather recommend stocks and shares ISAs,” said Lisa Best, research manager at Intelligent Partnership.
“The FCA’s sector views point to a big increase in IFISA accounts so I think there is still a case for the IFISA. But there may be some advisers who are still resistant to alternative finance assets.”
Best said that many P2P platforms haven’t needed to go down the adviser route because they have been going direct to retail investors but with the new restrictions on how much non-advised retail investors can invest, it’s likely more platforms will use advisers.
“I think advisers will become much more important in P2P, and will have a big impact on its future,” Best said.
“I think it’s one of the main routes forward for P2P and will be a slow burn.
“As the platforms and advisers become more engaged, advisers will get a better understanding of the benefits of using P2P and offering something different to their clients.”