No recovery in sight for ISA sales

Leading fund managers are bracing themselves for another year of disappointing individual savings account (ISA) sales. With just one week of the 2004/05 tax year to go, sales of ISAs remain flat, despite improving stock market valuations over the past 12 months.

Leading fund managers are bracing themselves for another year of disappointing individual savings account (ISA) sales. With just one week of the 2004/05 tax year to go, sales of ISAs remain flat, despite improving stock market valuations over the past 12 months.

ISAs, which allow investors to shelter up to £7,000 of stock market investments from tax each year, were introduced in 1999 to replace personal equity plans (PEPs). But despite City fund managers' persistence with expensive marketing campaigns every year in the run up to the end of the tax year on 5 April, most companies have recorded poor sales in recent times.

The investment industry had hoped that sales of collective fund ISAs would finally improve this year, after a disastrous period since the stock market bull run collapsed at the end of 1999.

However, while the subsequent market downturn bottomed out at the beginning of 2003, investor confidence has been slow to return. Even the 7.5 per cent return posted by the UK stock market last year and the FTSE 100 Index's breakthrough to the 5,000 level last month have failed to revive ISA sales.

Although a handful of individual managers say their sales are up, intermediaries such as financial advisers say investors have still not returned to the ISA market.

Darius McDermott, the managing director of Chelsea Financial Services, one of Britain's biggest fund brokers, said: "What the investment groups are telling me is they are not having such a good time - very few managers seem to be ahead of their targets."

Ben Yearsley, the investment director of the independent financial adviser Hargreaves Lansdown, added: "Our sales are just about on a par with last year, but we have had to work very hard to get them and overall I think sales of ISAs will be down year on year."

Fund managers say the Government's decision last year to cut a valuable tax break that was previously available within ISAs has added to investors' nervousness.

Helen Stephenson, a spokeswoman for the Investment Management Association (IMA), said: "The removal of the 10 per cent tax credit from dividends on funds with ISAs last year has been a real disincentive, and it takes time to rebuild confidence, even after an improvement in stock market valuations."

Ms Stephenson said she hoped Gordon Brown's announcement in this month's Budget that ISAs would continue to be available until at least 2010 would boost sales. But the trade body, which represents all Britain's leading fund management groups, has so far failed to record any uplift.

Sales of stock market ISAs in January, the last month for which official figures are available, were down by 79 per cent on January 2004. However, certain managers are bucking the trend. David Cowdell, the director of personal investments at Fidelity, Britain's largest fund manager, said: "Our gross sales this year to date are up 13 per cent on the same period last year and it's worth remembering a good chunk of sales come in during the final week."

New Star Asset Management, the fund manager set up by the Jupiter founder John Duffield, is also understood to be performing well, as is Artemis, another relatively recent entrant to the retail fund management market.

The slowdown does not affect cash ISAs, the £3,000-a-year risk-free alternative to stock market funds. Banks and building societies continue to report buoyant sales of these accounts.