The Financial Services Authority has warned consumers to think twice before investing in "exotic" ISA...
FSA officials said they were concerned that the end of tax year ISA rush might blind consumers to the dangers associated with high return/high risk ISAs - such as those which invest in hedge funds or use derivatives linked to the performance of complex hedge fund indices.
Anna Bowes, sales and investment manager for Chase de Vere Investments, agreed many consumers are not aware of the risks associated with even the simplest ISAs, but are often determined to buy high risk products anyway because they have heard of the high rate of returns they offer.
"These products are always as dangerous as the person who is investing in them if the person does not really understand the risks," said Bowes.
"You could also say this also applies to products such as the Cash ISA, because people need to make sure they will have access to their money when they want it, or whether they will lose three months interest by doing so. But it is the responsibility of the IFA to explain that the investment return can drop."
Bowes added that she was concerned by suggestions from the FSA that CAT standard ISAs might be safer than non CAT-marked products.
"Guidance recommends that consumers '…check out CAT standard ISAs. They meet minimum [government] standards for charges, access and terms'. But while Cat standard ISAs may meet the costs and charges, there is no guarantee that they are safer just because they fit into the government's standards for charges and access to terms," added Bowes.
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