Potential ISA switching boom if awareness of rules spreads

As Independent Financial Advisers and fund management companies are hoping for a buoyant end of tax year "ISA season”, research conducted on behalf of F&C Investments has revealed that 57 per cent of the public are unaware that they can switch to a different provider if they are not satisfied with an existing Personal Equity Plan or Individual Savings Account.

"2006 was an excellent year for stock markets and, providing there are no nasty shocks over the next couple of months, that should make for a bumper ISA season as investors seek to utilise their allowances before the end of the tax year," said Jason Hollands, Director, F&C Investments.

"Yet while the focus will undoubtedly be on new inflows, many billions of savings are tied up in existing plans. Before investing new money, it therefore makes sense to review existing investments to ensure that you have a sensible spread that meets your risk profile and objectives. If necessary it might make sense to switch existing ISAs into alternative plans."

The F&C study has also discovered that the Chancellor's recent decision to allow popular Cash ISAs to be transferred into stock market plans could lead to an unexpected bonanza for the investment industry should public awareness spread. Of those surveyed who currently have Cash ISAs, some 5.6% stated that they will "definitely consider switching them into stock market ISAs" and an additional 42.3% responded that they "may consider switching into stock market plans but not yet”. While 52.1% of Cash ISA owners ruled out ever switching into stock market based plan, even a modest shift from Cash ISAs into stock market based plans could provide a fillip to fund managers.

"It definitely makes sense to get some good independent advice before switching an ISA, particularly if you are contemplating a shift from a very low risk asset class such as cash to a much more volatile investment such as shares. However, for some investors this may be an appropriate move and the risks can be partly mitigated by choosing diversified funds or indeed cautious investments such as cash plus or balanced funds," said Hollands.

The F&C research found that when choosing a stock market ISA provider the most important factor for the public was identifying a "well known, respectable company" (37.5%) followed by having "strong investment performance" (33.8%). This compared to just 17.9% who focused on "low charges" and 10.8% who felt having "a wide choice on offer" was their main consideration.