Back when Isas arrived in 1999, the Government was anxious to offer some
reassurance to the new investor that he or she was not going to be ripped
Regardless of whether you agree with the Government's view of the savings
industry,it is understandable that they would want to offer some
encouragement and guidance to the concept of saving for newcomers,
particularly (but not exclusively) saving linked to stockmarket investments.
But is the Cat living up to expectations? Earlier this year, Market Minder
told us that 64 per cent of the investors they had surveyed did not know
what a Catmark was. Hardly an indication that Catmarks are proving a
valuable tool for the investor.
Still, lack of public awareness aside, Cats are not all bad and certainly
have their good points.
Each Isa component, of course, has a matching Cat standard. Here is a
brief overview of each.
This is probably the least criticised of the three Isa Cat standards.
While you can have unit trusts (money market funds) and certain National
Savings in a cash Isa, these would not, by definition, meet the Cat
To meet the Cat standard, a cash Isa must be a deposit account – most are.
In addition, there must be no one-off or regular charges of any kind
although managers can make a charge if the investor loses his plastic card
or requests duplicate statements.
The manager cannot require a minimum transaction size greater than
£10 and the investor must be able to withdraw his cash within seven
Interest rates must be no lower than 2 per cent below base rate and must
follow any upward movement of the base rate within one calendar month.
There should be no limits on frequency of withdrawals or any other
conditions applied to the account.
In practice, many providers pay more than base less 2 per cent and the
huge popularity of mini cash Isas is demonstrated by the fact that
£11.5bn was placed in them during the 1999/2000 tax year. Whether this
represented new savings or the movement of existing savings from older less
favourable deposit accounts remains to be seen. Official figures show that
subscriptions to mini cash Isas in the first half of 2000/01 at just under
£7bn were up by almost 16 per cent on the 1999/2000 figures for the
Because the Catmark scheme is voluntary and the Government does not
collect statistics on them specifically, we do not know the proportion of
cash Isas that are in Cat-standard products but, given that 97 per cent of
all cash Isas are of the potentially qualifying deposit account type and
that the other 3 per cent are most likely to be held in the cash components
of maxi Isas, it seems logical to assume that a high proportion of the
£11.5bn is held in Cat-standard products.
The insurance component of the Isa is singularly unloved with less than
0.25 per cent of all Isa subscriptions in 1999/ 2000 being directed into it.
There is, however, a Cat standard for insurance Isas limiting annual
charges to 3 per cent and guaranteeing that surrender values should at
least return the premium after three years.
Stocks & shares Cat
The Cat standard for the stocks and shares component is the one that has
attracted the most criticism, perhaps some of it justified. This is where
the investor is most likely to need advice and, some would say, where he is
least likely to get it.
The Cat standard requires that the annual charge should be no more than 1
per cent of net asset value and that no other charges should be paid by the
investor. It should be possible to save modest amounts because any minimum
saving levels that the manager may set can be no greater than £500 for
a lump sum, or £50 a month for regular savings.
The investments that may be held within a Catmarked stocks and shares Isa
are considerably restricted from the wide range that may be held in stocks
and shares Isas generally.
The Cat standard limits them to unit trusts, Oeics, or investment trusts
where the underlying investments are at least 50 per cent invested in
shares and securities which are listed on EU stock exchanges.
This looks very much like insisting that they invest in collective
vehicles that meet the old (about to be abandoned) Pep rules. Many in the
industry have questioned why a benchmark that is designed to cover charges,
access and terms should stray into the area of determining investment
At a stroke, it rules out the 18 per cent of Isas offering direct holding
of shares or any other qualifying investments. For this reason, you will
not find a stockbroker offering a Catmarked Isa, even if his charges are
under 1 per cent a year.
So have Catmarked Isas really made a mark? The industry concern has always
been, and still remains, that there is a danger that the very investor who
they are intended to help may see them as some sort of guarantee.
They may guarantee “decent” terms (depending on how you define decent) and
“easy” access. Whether they guarantee “fair” charges, as opposed to low
charges, is debatable and they certainly do not guarantee investment
performance. Their obvious attraction is their low charges.
With no guarantee of good performance, the IFA's role is just as important
as ever, particularly for the novice investor. This becomes even more
important when you consider that many Catmarked Isas are trackers, with
only a handful of active funds carrying a Catmark.
Many Isa managers appear to be ignoring the Cat standards for Isas. Out of
almost 2,000 unit trusts, about 38 carry a Catmark.
Even those companies that have Catmarked Isa products do not appear to
promote them very much, presumably because the 1 per cent charge ceiling
leaves very little margin for advertising and/or remuneration to IFAs.
It is this last element of advice that many find really concerning.
Imagine a new investor with absolutely no other savings finding himself in
the position of being able to afford to put away £25 per month. He
sees an advertisement for the XYZ unit trust Catmarked stocks & shares Isa
and signs up as a regular saver.
Who is going to tell him that, in his circumstances, the last thing he
should be doing with his only savings is to put them into a stockmarket
investment – however much the risk is spread – and that he would be better
off putting his savings into a cash mini Isa where they will earn gross
interest and be readily available if at any point in the future he needs to
dip into them in an emergency?
Some supporters of the Cat standards will tell you they should provide the
catalyst to encourage IFAs to switch to a fee-paying structure where
investors pay for the advice they receive quite separately from the cost of
acquiring the investments.
Even then, it is difficult to see whether our new investor will be
prepared to pay for advice before clipping the coupon. The reality is that
most people need financial advice and the worst effect that the Cat
standards could have would be to imply otherwise to the “nervous new
investor” and, indeed, many more that are neither nervous nor particularly
The idea behind the Cat standards is a good one and very few would argue
with the notion of an endorsement of a financial product that is good value
Let us hope that the Catmark is not seen as something that it certainly is
not – either a kitemark or some sort of seal of approval.