Over the last year, there has been a sharp rise in the suspected mis-selling of ISAs. The Financial Ombudsman Services (FOS) saw a 166% rise in complaints over the mis-selling of stocks and shares ISAs in the last year. They received a whopping 200 complaints, up from 75 the previous year.
The figures show increasing concerns that some financial advisers and wealth managers may be misleading customers over the nature of the investments that they are making through their ISAs in order to earn fees.
Examples of the complaints made against stocks and shares ISA providers or financial advisers include the deliberate exaggeration of the expected returns of the ISA or the deliberate playing down of the risks involved in a stocks and shares ISA.
Data provided by the FOS also indicated that there has been increasing concerns over the level of risk taking by ISA fund managers with a 67% increase in the number of complaints relating to excessive risk taking by ISA providers rising from 280 in 2014 to 476 in 2015.
The rise in concerns over the risk taking in ISAs, is in part, down to a basic failure by many wealth managers to diversify and by an unwillingness of wealth managers to provide ISAs that more closely match the risk profile of investors.
Most people who invest in ISAs do not want to take on excessive risks. However, the UK wealth management industry still has too much of a concentration in UK equities which leads to excessive volatility and poorer returns.
With the right technology wealth managers should be able to closely match the risks involved in an ISA portfolio with the carefully assessed risk appetite of the individual investor – so mis-selling shouldn’t be a problem. The modern wealth manager should have a product that suits the entire spectrum of investors.
It is clear that many of the larger losses made by stocks and shares ISA managers are created by their failure to stress test their portfolios adequately. At Moneyfarm, we stress test portfolios against numerous scenarios – like a sudden rise or fall in property prices or interest rates – many wealth managers do little or no systematic stress testing.