Octopus Money CEO: Cash ISA saving can be ‘over-comforting’
Saving into cash ISAs can lead investors to become “over-comforted” with their financial situation, despite likely better choices, the CEO of Octopus Money has said.
Speaking to Morning Wire, Ruth Handcock argued that the fact that 92 per cent of Brits do not receive financial advice was “the biggest unsolved problem in financial services”.
“It feels very strange that we operate in a world where if you’re already wealthy, you can get access to help, yet to get to the point of being wealthy enough to feel comfortable, there’s no help available,” she said.
With developments in technology, Handcock said a business model to provide financial advice to more than just the wealth was financially viable.
“The cost to serve is about a fifth of what it would be in wealth management,” she explained.
ISA reform
In the Spring Statement earlier this year, Chancellor Rachel Reeves confirmed that ISA reform was on the horizon, with changes to the regime expected to be announced in the Autumn Budget or next month’s Mansion House speech.
“The thing that erodes customer confidence is lots of changes,” warned the CEO, but said she was looking forward to clarity on the issue of ISAs.
Handcock seemed supportive of some shift to the ISA status quo, arguing that many who invest in cash ISAs are “over-comforted by the perceived tax benefit of doing so”.
“For many people, the tax benefit doesn’t actually exceed their individual savings allowance anyway. So I think what worries me is people take a disproportionate amount of comfort from it, and therefore think I’m doing the right thing,” she explained.
Handcock compared the cash ISA to auto-enrollment in pensions, which has been positive in boosting further savings for the future but ultimately falls short of fully preparing investors for later in life.
“I am persuaded by the fact that there are a huge amount of deposits in cash ISAs, where people don’t need access to that money for the next five years, and in that case, most people would get a better long term financial outcome from investing that money,” she added.
While she said simplification was “critically important” in financial services, she was reluctant to back an ISA simplification scheme as “the problem is people are not helped to make the decision” rather than simply changing the products.