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The Innovative Finance ISA is growing!

Posted date: 4 September, 2018 Author: Jake W-P In category: Adviser
The Innovative Finance ISA is growing!-Goji Direct Lending Investment Experts

Following HMRC’s recent statement on ISA take-up for 2017/18, here are some headline figures:

  • £69bn was subscribed into ISAs in 17/18, an increase of £8.8bn on 16/17 and bringing total ISA funds to £608bn
  • 10.8 million Adult ISAs subscribed to in 2017/18 (down from 11.1 million 2016/17).
  • Almost £300m (805% growth from 16/17) was subscribed to IFISAs by c.31,000 investors (620% growth from 16/17)
  • Compared to 2016/17; stocks and shares ISAs rose by 246,000, Cash ISAs subscribed to fell by 697,000, IFISAs rose by 26,000
  • Average subscriptions in 17/18 were £6,409 – 15% up from 16/17. IFISA average was £9,355.

The Government introduced the IFISA in 2016 as a way for retail investors to invest tax efficiently in the Direct Lending sector via debt-based securities and peer to peer. For many it was a logical innovation bearing in mind the Government’s policy objectives of encouraging financial innovation, diversifying financing for the UK economy and UK SMEs and helping savers who are struggling to beat inflation.

Given that Direct Lending was the world’s fastest growing asset class in 2017, retail investors have lagged behind institutional investors who had invested $360bn into the sector by the end of 2017. The latest figures published by HMRC show that retail investors, and financial advisers, are now embracing the sector and seeing it as a real alternative to cash and stocks and shares ISAs.

Over 31,000 IFISAs were opened in the last tax year, which brings the total number to 36,000, showing it’s becoming a real success. It’s still small fry compared to cash ISAs (7.8m ISAs) and stocks & shares (2.8m), but to see such rapid growth is surely a sign the IFISA offers real customer benefit at a time when other more established methods of growing investors’ wealth are suffering their own challenges. In fact, compared to its more established friends, the IFISA is doing very well. The amount subscribed in cash ISAs has actually fallen for the third year running, likely due to the poor rates of return offered to savers, especially when compared to the rate of inflation.

Digging into the detail: average ISA value

Stocks and Shares = £10,124

Cash = £5,114

Innovative Finance ISA = £9,355

ISA transfers to IFISAs administered on Goji’s platform

Whilst HMRC doesn’t publish data on transfers, data from the c.8000 accounts that Goji administers for a number of platforms, suggests the following indicative figures with regard to transfers

Type of ISA

Percentage transfers

    Average value

Stocks and Shares 17.66%     £26,083.25
Cash 71.20%     £15,553.65
Innovative Finance 11.13%     £10,988.61

 

So what does this tell us?

Cash ISAs are still offering very low rates of return, and the recent interest rate rise did nothing to change this. (Funny how mortgage rates immediately rose though, isn’t it?) So investors are turning to the IFISA for low volatility income and additional diversification, as can be seen in the high percentage of transfers from cash ISAs. The market data suggests investors agree with what the industry has been saying for some time – that Direct Lending and the Innovative Finance ISA sits in between cash and equities when it comes to risk.

Goji CEO, Jake Wombwell-Povey, says:

Goji’s own surveys and analysis also suggest more than 1,000 IFA firms are turning to the Direct Lending sector. Advisers have naturally been cautious of an asset class that, to them, is relatively new and untested. But that’s now changing, and the tide seems to be turning.

Andrea Sutcliffe, of Adviser Firm ABS Financial Planning, says: Goji’s Direct Lending Bonds offer our clients a conservative, risk-managed and diversified approach to growing their money, without the volatility of traditional markets. We recommend advisers take the time to understand the Innovative Finance ISA, along with the asset class, and see what it can do for their business and clients.

The challenge still remains for SIPPs, but as more advisers appreciate the diversifying effect of the asset class, and its low volatility nature compared to traditional fixed income (which is increasingly concerning in a rising interest rate environment), logic says SIPPs won’t be far behind.

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Thanks for confirming you're an adviser. Please bear in mind Goji's products are considered 'non readily realisable securities', which means they're illiquid, difficult to price and don't have a secondary market. Now that you know, please feel free to click or tap the button to proceed.