An estimated £21bn will come on to the market this year from maturing Tessas. At least 2.3 million investors could potentially transfer into a Tessa-only Isa. This is a huge market, yet many advisers are missing out on the opportunity.
IFA clients who have Tessas should be made aware that they are not necessarily getting the best follow-on product from their current provider. IFAs can add value to the investment process even in the Tessa market by providing qual-ity advice.
Tessas are no longer available but investors have the opportunity to transfer their maturing Tessa capital, but not any interest earned, into a Tessa-only Isa or Toisa. There is therefore a maximum Toisa investment of £9,000.
Toisas retain a tax-free status and it is important to remember that this allowance is in addition to the standard Isa allowance of £7,000 a year.
As an example, if the accumulated value of a maturing Tessa plus interest is £12,000, only £9,000 can be reinvested in a Tessa although the balance of £3,000 could be available for investment in a normal Isa. If this option is chosen, it is important to note that the client may not then take out another maxi or mini Isa during the same tax year.
There are two main types of Toisa available. The first is a variable-rate Toisa offered by most leading banks and building societies. This is by far the biggest market, estimated to be 80 per cent of all Toisas.
However, with interest rates falling, many clients will be interested in stockmarket-linked Toisas. As with variable-rate Toisas, clients receive at least their original capital at maturity.
However, the interest payable is calculated by reference to an equity index, usually the FTSE 100. The attraction of these Toisas is clearly the higher potential return but investors have to be aware of the risks involved.
The problem for IFAs is that most clients bought their Tessas directly from banks or building societies, which do not have to inform clients of their right to move to another provider.
This is where a suitable lead generator can play a vital role.
A lead generator need be no more that a one-page document which outlines to clients the following options if they have a maturing Tessa:
If they want to reinvest, they do not have to stick with their existing provider but have six months to choose an alternative. All they have to do is to request a maturity certificate from their Tessa provider.
If a client has already reinvested in a Toisa, they should be informed of the opportunity to transfer. The client should check if there are any penalties on transferring from the original Toisa.
Finally, there should be a response mechanism and contact details for the IFA.
This lead generator can be sent to clients as an individual mailing or included with a mailing on another topic. Even more effectively, it can be enclosed with all correspondence leaving the IFA's office, including routine items such as Isa schedules and acknowledgement letters. This is a simple way of turning non-productive correspondence into business.
IFAs can really add value to their clients' portfolios by thoroughly reviewing their Tessa investments.
There are around 2.3 million clients with maturing Tessas.
Most will invest in variable-rate Toisas, even though interest rates are falling.
Many are unaware of their right to change provider.
IFAs can use lead generators to access these clients and then advise them of their ability to transfer.