There are concerns the new British Isa will raise challenges for firms trying to comply with consumer duty regulations.
The Isa was announced by Jeremy Hunt in the Budget on Wednesday (March 6) and would see an additional £5,000 allowance to be invested in UK assets.
However, pensions director at Aegon, Steven Cameron, said the narrow target market could raise challenges under consumer duty.
Cameron said: "Even for individuals ‘maxing out’ their stocks and shares Isas, there are questions over the appropriateness of increasing exposure to UK equities rather than a more geographically diversified portfolio.
"The consumer duty requires advisers to avoid causing foreseeable harm which will prompt consideration of past and anticipated future relative performance.
“Given the narrow target market, the British Isa looks like a very niche product."
The government has now launched a consultation on the scope of the new Isa, which is due to close in June.
It said ordinary shares, collective investment vehicles, corporate bonds, gilts and cash could be included and set out that as a starting point the government could replicate some of the previous approaches to Personal Equity Plans.
Cameron added the additional product could make the Isa regime more complex.
He said: “While the chancellor’s aim of encouraging greater investment in UK companies is understandable for UK economic growth, this needs to be weighed up against what’s in individuals’ best interests.
"A specific new product may not be the right way of going about it. Another option with much wider scope would be to disclose exposure to UK equity investment upfront and more prominently.
"This could be disclosed alongside other important aspects including investment risk profile and wider asset allocation approach.
"Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals."
This complication of the system is something FT Adviser readers also raised concerns about.
Gareth wrote: "That brings the number of different Isas to five, so does nothing to aide clarity for customers."
While Yvonne added: "It seems he [the chancellor] wants investment into British companies - I don't see how buying the companies' shares on a stock exchange will achieve that, it will have to be direct investments into unlisted shares which gets better tax relief through VCTs."
tara.o'connor@ft.com
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