My dismal ISA experience part 2: The perils of being labelled "politically sensitive"

Regular readers may remember that I took the time to detail my dismal ISA experience a couple of days ago.

The aim was chiefly to make a point about how the misnamed financial “services” industry and its regulators conspire to skewer people who attempt to follow the urgings of Government and others by saving to provide for their futures.

It was the first time in a while that I’ve engaged with anything much more complicated than a bank account, despite having spent a number of years writing about personal finance earlier in my career, and it wasn’t a happy experience.

While I did ultimately get an ISA set up, albeit not the one I initially wanted (I was defeated by a combination of my bank and the ISA provider’s spat with MasterCard), it was an eye opening experience, and not in a good way. Here are some of the issues it raised.

Weird and scary things are happening

One of the first problems I had with my first choice ISA provider was getting flagged as a politically sensitive person by the company it uses to screen applicants to ensure it complies with the City watchdog’s “know your customer” rules. Mercifully, this was not because of my liberal (small l) political views and passionate opposition to Brexit. It would be really scary if Brexiteer ministers stooped to that level (mind you…) No, having made some inquiries, I was told I was flagged as a “false positive”. No reason was given for why this might have occurred but I did discover that it isn’t just me that this has happened to. If you think about how our data is shared and stored and sold, and about the snooping that the Government does, the implications of my getting falsely tagged as politically sensitive are ever so slightly disturbing.

There is too much choice. Far far too much choice

The ISA I finally took out was provided by Legal & General. I picked the firm because it has a range of reasonably competitively price funds that track stock market indices, which I’d recommend for anyone dipping their toes into these waters because pricer funds that aim to beat the market rarely do so over the long term. I also liked the fact that L&G, by contrast to some of its peers, has been willing to use the power it has in the market it has, by dint the investments we make, to oppose some of the crazier pay packages companies hand to their CEOs. Thing is, L&G doesn’t just do trackers. It, in fact, has 84 different funds to choose from. And L&G is just one ISA provider. There are many others. Some companies provide “wrapper” ISAs so you can pick from across nearly the entire market. It’s a wonder how even professionals, whose lives are devoted to evaluating funds, can make sense of the bewildering array on offer, let alone Joe Pubic, or even the average financial advisor they might feel inclined to approach.

There’s too much information out there

Yep, we in the media are partially at fault for this. There are endless articles out there containing advice on what to do, and lots of them are very good. Personal finance journalism might not be terribly glamorous, but the people I know in the trade work hard at it, and genuinely care about doing well by their readers. But I fear the novice punter, presented with the trove of information available from five minutes of Googling, might be left scratching their head. How to tell the wood from the trees?

The Government doesn’t help

When the Blair Government launched the ISA it also came up with a scheme designed to highlight those which ticked boxes regarding their costs, the access to funds they offered, the terms investors would get. The CAT mark scheme was, however, a flop. There was no logo for CAT marked funds, and little in the way of promotion. Having launched the CAT mark, ministers walked away, scared to be seen to be endorsing products that can, when all is said and done, lose money for the people who buy them. Shame really, because the principle of giving a star to cheap and simple funds might be a good idea as long as the punter understands the risks.

Good advice is hard to find (and expensive)

That’s actually nothing new. There are some useful tools available to help you navigate the maze, and companies like Hargreaves Lansdown offer model portfolios of funds their experts select, with different levels of risk attached, that you can sign up to if you’re happy to take their choices on trust. But basically, you’re on your own, unless you have a lot of money to invest, which should facilitate access to higher quality advisors. I remain of the view that the best option for the novice investor looking for a better long term return than is provided by the pitiful rates of interest offered by bank or building savings accounts, is an index tracker fund, assuming they can find one amidst the huge range of funds they will be offered.

Lots of younger people are going to embark on this difficult journey through the new Long Term ISA, to save for things like deposits on houses. This could all go horribly wrong

I wonder how they’ll feel about investing after a few years. It’ll be ok if the stock market rises, and their chosen funds do ok. But what if that doesn’t happen? I wish them the best of luck because it’s very much a case of cross your fingers and hope it works out. Assuming, that is, you don’t end up falsely tagged as “politically sensitive”. If that happens to you, welcome to the club. Scary, isn’t it.