The ISA season opens but make sure that you call the shots

To help consumers through the maze of ISA sales material the Financial Service Authority is posting top tips on understanding an ISA offer in the What's New section of the Consumer Information website.

Deborah Arnott the Head of Consumer Education at the FSA says:

"This time of year thousands of guides and direct mail flyers fall out of your newspapers or drop through your letter box, offering what is claimed to be the best ISA deal around. All the information is designed with the sole purpose of persuading you to send off your cheque straight away."

"This material should, however, be read with a pinch of salt, for while a particular offer might well be a good deal for someone, it is certainly not going to be the most suitable for everyone. Consumers should, therefore, act cautiously and use the tips to help them look beyond the headline claims in the guides and direct offer advertisement."

Last year the FSAs monitoring teams found that eight out of fourteen ISA guides, selling investment ISAs, they examined, did not make the offer completely clear. There were also problems of the clarity with numerous printed direct offer advertisements. The FSA will be keeping a close eye on the market for any further repeats of these problems.

Here are the watchdogs tips on what you should look out for when buying an investment ISA from an ISA guide or direct offer advertisement.

1. The top ten: don't assume an ISA will be suitable for you just because it features in a so-called top ten ISA guide. The selection in an ISA guide is limited, so the offer may not be the best on the market for you;

2. Ask questions to protect yourself: You can help to protect yourself by questioning anything that you don't understand. Remember the final decision to buy the product is yours no matter how persuasive the opinions may seem in the guides. This information does not amount to individual advice. If you want advice specific to your circumstances you should consult an authorised financial adviser;

3. Find out who is selling the ISA: Its not always obvious. Some ISA guides may appear to be published by a familiar name such as a newspaper. Dont be lulled into to a false sense of security because it is a familiar name. Bear in mind that it is not the newspaper that is selling you the ISA. So make sure you know whose recommendations you are following, and which firm you are doing business with;

4. What is the ISA invested in?: Find out what the fund invests in this is usually found under the banner of the aim of the fund. It might be technology funds, UK stocks or stocks in another part of the world. Think carefully about whether you are comfortable with investment risk before you put your money into an investment ISA. There will be many different investment strategies, some more risky than others. This should be explained in the literature. If you cant find it, call the ISA fund manager;

5. How risky is the ISA?: Some advertisements appear to offer an unbelievably good deal, such as a very high rate of income or stock market investment with a capital guarantee. Compare this with the average interest rate paid by a bank or building society which is usually around 4% per year. Remember the oldest investment advice: If it looks too good to be true, it probably is. You cant get unbelievably good deals without a downside in these examples, a risk to capital or a reduced return;

6. What does it cost?: Read the document carefully. Look out for the list of key features which provide important facts about the ISA including costs and charges;

7. Commissions and annual costs: costs and charges such as commission should be identified clearly in cash terms. Even if the guide offers to refund initial commissions, you will still have to pay an annual charge to the ISA manager for managing your fund. This annual charge will vary but it can be between 1 to 1.5 per cent per year;

8. Shop around: Some ISA guides and direct offer advertisements offer discounts, but that does not mean an ISA bought through them will be the lowest charging ISA. Shop around for a better deal using the FSA comparative information tables www.fsa.gov.uk/tables. The tables for ISAs will be expanded in February to cover a wider range of funds.

9. The past is history: dont buy a fund based just on the past performance given in the guide it is not an guaranteed indicator for how the fund will do in the future. Some funds that were very popular in the past may not be doing so well now. If you do want to consider past performance, make sure the figures are up-to-date;

10. Is the firm authorised to sell ISAs?: if in doubt always check with the FSA website www.fsa.gov.uk or FSA Consumer Helpline (0845 606 1234) to see the firm is authorised before handing over your money. If the firm is not regulated you find that you are not protected by the compensation scheme if the firm goes bust. ISA managers can be banks, building societies, investment firms, stockbrokers, insurance firms, solicitors or financial advisers.

The FSA guide to ISAs an Introduction explains in plain language the options open to consumers and has a list of useful questions to ask a financial adviser and useful contacts for more information. The guide is available from the FSA Consumer Help on 0845 606 1234 (calls charged at local rate).

Notes for editors

1. The FSA guide to ISAs an Introduction is part of a series of guides and factsheets available from the FSA Consumer Helpline. Other guides in the series include; guide to your mortgage, financial advice, and making a complaint. All publications and helpful consumer information is available on the FSA website: www.fsa.gov.uk/consumer/

2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.