A determined reader has written to me on a number of occasions this year asking me to campaign for the major investment platforms – Hargreaves Lansdown (HL.), interactive investor and AJ Bell (AJB) – to offer flexible individual savings accounts (Isas) to customers.
The key difference between flexible and regular Isas is that the former allow you to add money to your Isa, withdraw it and replace it again – all within the same tax year without affecting your allowance. The legislation for this flexibility was introduced in 2016 but it is not mandatory for providers to offer it. And while flexible Isas have been widely adopted by banks, they have been largely ignored by investment platforms.
The platforms say they see very little demand for flexible Isas, as stocks-and-shares Isas are supposed to be long-term holdings and people adding to them shouldn’t need access to the money within 12 months anyway.
However, the reader insists that from a private investor’s perspective, a flexible Isa is a “massive advantage” as funds may be needed for an emergency and may also be replaceable. The events of the past 18 months certainly serve as a reminder that shock events can happen and you could find yourself with an unexpected need for cash.
In any event, flexible Isas don’t appear to have any downsides, so why shouldn’t platforms offer the more flexible option?
Danny Cox, head of external relations at Hargreaves Lansdown, says that a flexible Isa adds “an additional layer of reporting and administration”, a cost that ultimately you the investor would presumably have to cover. But if the demand is as low – as he says – surely this cost would be negligible and easily covered by these platforms’ chunky profit margins?
I turned to Twitter for more thoughts on the topic. Following a brief explanation of what a flexible Isa is, I asked a simple question: “Do flexible Isas offer significant benefits?” with the option to respond “yes, definitely,” “yes, maybe” and “nah, sounds unnecessary”.
The results took me by surprise. Out of 54 respondents, 70 per cent clicked “yes, definitely” and only 13 per cent thought the benefits sounded unnecessary.
It’s easy to see why investment platforms aren’t rushing to adapt their products to make it easy for customers to withdraw money. But it feels as though it would be in investors’ interests for the benefits of flexible Isas to be a feature of all Isas – ie made mandatory.
“It is this sort of issue which I believe the Financial Conduct Authority’s new Consumer Duty may tackle when it is introduced in 2022,” says Kay Ingram, chartered financial planner at LEBC Group. “Firms will have to put the consumer interest at the heart of their product design and processes.”
In the meantime, perhaps one of the big platforms could gain an edge by offering this flexibility first.
If your platform doesn’t offer flexible Isas but you wish it did, please email me at mary.mcdougall@ft.com.
