"Dear HM Treasury: past performance does not indicate future results"

The Government will allow Long Term Asset Funds to be held in Stocks & Shares ISAs next year, it was announced today by the Chancellor at a summit of top finance executives in Leeds.

While one wealth manager welcomed the move, a trader said he finds “it staggering that the government is allowed to suggest that someone is going to make significantly higher returns if they move out of cash while, at the same time, financial firms have to issue a raft of risk warnings”.

Banks, the government says, will send investment opportunities to savers with cash sitting in low-interest accounts for the first time, and major financial institutions – including high street banks - are backing an advertising campaign that will highlight the opportunities of investing for consumers who are able to do so.  

Under current trends, moving £2,000 from these accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time. 

Stocks and shares, the Government adds, have performed significantly better than cash savings accounts in recent decades. According to some industry estimates, more than 29 million adults across the UK have cash sitting in a low-interest rate account offering around 1% - while the average return for stocks and shares over the last 10 years is around 9%. If those savers invested £2000 today, they could have £12,000 in 20 years’ time. This compares to £2,700 if they held this money in a cash account offering 1.5% at the current interest rate, making them over £9,000 better off.

Samuel Mather-Holgate, Independent Financial Adviser at Mather and Murray Financial, said this was a good move by the Chancellor: “This is a natural step to continue to simplify what was, and still is, an overly complicated ISA regime. It won’t revolutionise savings, though, as long term asset funds aren’t right for the majority of investors and those that get excited by them are likely to already hold them in Innovative ISAs. Good move from the Chancellor, though.”

Riz Malik, Director at R3 Wealth, said liquidity could be an issue: “While opening up LTAFs to retail investors via ISAs is a welcome step for diversification, there are real concerns around liquidity. Even if you are investing for a longer time period, what happens if people want to withdraw their money? The danger is that investors may not fully appreciate the implications of what they are investing in. If we struggle to get people into the concept of investing in assets other than cash at present, which we are, then Long Term Asset Funds are going to be an even bigger uphill struggle.”

But trader David Belle, Founder ot Fink Money, was scathing in his assessment: “Dear HM Treasury: past performance does not indicate future results. I find it staggering that the government is allowed to suggest that someone is going to make significantly higher returns if they move out of cash while, at the same time, financial firms have to issue a raft of risk warnings. This borders on the obscene. It might seem like a minor issue, but the fact that nobody has even thought that this might constitute advice probably provides an insight into how well thought-out the rest of the policy is.”

Sean Horton, Managing Director at Respect Mortgages, also saw a regulatory red flag: "The projected £9,000 benefit over 20 years assumes consistent performance and ignores sequence risk. I'm not sure the FCA would approve that financial promotion. Yes, potentially more money can be made from higher risk investments. The real challenge lies in educating savers about the fundamental differences between cash deposits and long-term equity investments. And for that you need impartial advice."

Tony Redondo, Founder at Cosmos Currency Exchange, added: This is not risk-free, but then neither is holding funds in a cash account where your money’s purchasing power is diminishing month by month because the return does not keep up with inflation."