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Tempting clients back to Isas


With stockmarket returns less than exciting, investors appear to be playing it cool. But, Amanda Newman wonders, will this season&#39s Isas entice IFAs&#39 clients back?

It would be unthinkable for Premiership football clubs to start the season early, leaving the likes of Manchester United and Arsenal still wearing their sarongs in faraway places. But individual savings account (Isa) providers, faced with the prospect of having no Isa season at all, have realised that the early bird catches a trophy of investors. This has meant the traditional kick-off period for Isa campaigns, between January and April, is no longer set in stone.

Investors have been as sick as parrots in the past couple of years as the technology boom blew up in their faces, the global downturn hit the stockmarkets and the US fought back against terrorism. The worst may be over, but investors are still playing it cool.

This caution is making more investors reliant on independent advice. Figures from the Investment Management Association (IMA), formed out of a merger between the Fund Managers Association and Autif, show that 64 per cent of investment fund sales were conducted by IFAs last year, up from 61 per cent in 2000. IFAs were responsible for 39 per cent of gross Isa sales in 2001, which made them the largest distribution channel for Isas.

The Fidelity Isa index for December 2001 also suggests that more people are consulting IFAs before taking out an Isa. It found 76 per cent of potential investors would buy an Isa through an IFA, a 16 per cent increase on the previous year.

Against this backdrop, product providers are preparing their Isa campaigns as usual, while recognising it is unlikely to be a golden year. Figures from the IMA show that gross Isa sales fell from £548.2m in December 2000, to £326.9m in December 2001. However, IFAs report that investor confidence appears to be slowly creeping back.


The new products section of Money Marketing online shows that Isas were appearing from early December, when Merrill Lynch HSBC brought out its self-select maxi stocks and shares Isa. This was followed by the Schroder UK select Isa in mid-December. Last month, the activity intensified, with Lazard, Fidelity, HSBC, Skipton Building Society, Framlington, Legg Mason, Scottish Widows, Schroders and Dresdner RCM ushering in new Isas. Other companies such as Investec, Gartmore, Jupiter and New Star brought out Isa eligible unit trusts and Oeics for the Isa season.

The Schroder income Isa and Scottish Widows Investment Partnership UK balanced property trust were the only investment trust Isas to appear. There has also been a single cash Isa from Skipton Building Society and three Tessa Isas from HSBC and its online venture with Merrill Lynch, Merrill Lynch HSBC.

Five new Isas that emerged in January were unit trust and Oeic Isas which packaged one or more of the providers&#39 existing funds within an Isa wrapper in order to tempt back investors.

The highest number of funds is offered by the Fidelity triple 2002 Isa, which has three funds spanning Europe, the UK and the US. Framlington&#39s biotech Isa is more specialist as it provides access only to the Framlington biotechnology fund, while the other three Isas from Lazard, Framlington and Legg Mason each contain two funds. In all cases except the Framlington biotech Isa, the funds offered are country specific.

Brett Greatrex, marketing director at Legg Mason Investors, says: “Generally, over the last couple of years, Isa funds were being launched that were sector specific on the grounds that globalisation meant looking at countries was less important. What&#39s happening now is a shift back to countries and, from an economic perspective, the UK is more robust relative to other countries.”


The UK is popular with investors who are attracted to the relative security of their home market, it also means investors are not exposed to currency risk.

Most packaged unit trusts and Oeic Isas are designed for growth, with the UK active income Isa from Legg Mason being the only exception. It sits alongside the Schroder income Isa as a product designed for income.

The Fidelity Isa Index for December 2001 found 64 per cent of investors surveyed said growth was their main priority &#45 15 per cent higher than the previous year. However, with low interest rates making it difficult to secure a decent income from building society accounts, product providers are noting the demand for income products.

In January 2002, Isa eligible funds with income as the main objective were introduced by Investec, Gartmore, New Star, Jupiter, Franklin Templeton and Baring. New Star&#39s is an equity income fund, Jupiter&#39s mixes corporate bonds and equities, while the other funds invest in corporate bonds.

Colin Jackson, managing director of IFA Baronworth, explains why product providers are now using corporate bonds. He says: “Apart from corporate bonds, it is difficult for product providers to offer attractive returns without too much risk. Because of the way the stockmarkets have been going, buying assets to underwrite income products is more expensive.”

With the spotlight on stocks and shares Isas, just one mini cash Isa appeared in January, the Skipton Building Society&#39s regular savings mini cash Isa. The introduction of the Financial Services Authority&#39s N2 legislation in December 2001 has complicated the sale of mini cash Isas through IFAs and this may be why fewer are being issued for the IFA channel.


Under N2, IFAs cannot recommend a cash Isa on the basis of interest rates, a full fact find must be carried out for clients and they must be given the key features documents. This would take IFAs longer to deal with and many feel it is unreasonable to charge a client for the extra time involved.


Product Review: Merrill Lynch HSBC offers Tessa pip

Merrill Lynch HSBC, the online partnership between Merrill Lynch and HSBC, has unveiled the Eurostoxx protected investment product (PIP).

This capital guaranteed Tessa Isa has a three-year term and tracks the performance of the Eurostoxx 50 index. Investors who hold the PIP to full term get their original capital returned plus a minimum return of 6 per cent. The maximum growth potential is 50 per cent of any growth in the index.

To get more than the minimum return, half the increase in the index must be higher than the 6 per cent minimum. Where this happens, investors get 50 per cent of the growth in the index.

The Eurostoxx PIP could be of interest to cautious investors with maturing Tessas who do not want to risk the Tessa money they have already built up. The minimum return ensures that investors do get something on top of this whatever happens, which could put some investors&#39 minds at rest. However, the maximum growth potential of 50 per cent may be too low a cap when stockmarkets could be heading upwards from recent lows. The Eurostoxx 50 index rose from 3360.24 points on January 22, 1999 to 3524.83 points on January 22, 2002.


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