Unsophisticated investors could get their fingers burnt chasing AIM tax breaks after the decision to allow these stocks in ISAs, according to Brewin Dolphin.
"Our general advice is that not many investors should consider putting the benefits built up in their ISAs at risk in AIM," the fund manager said in a statement.
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AIM stocks offer inheritance tax breaks, making them attractive to those coming up to retirement. However, Nick Fitzgerald, head of financial planning at Brewin Dolphin, warned investors to be aware of the risks before rushing to transfer their ISA savings onto the AIM market.
"The decision to allow them in ISAs legitimises AIM stocks like never before. However, the AIM tax breaks were traditionally designed for big and experienced investors; older savers who are trying to protect their money from inheritance tax could end up taking big risks with the savings they have built up in ISAs," Fitzgerald said.
Fitzgerald added that AIM stocks are often unsuitable for retired people despite the tax advantages, because they are volatile and provide low levels of income. The AIM index has lost 63.7% since the turn of the millennium.
He said: "Carefully selected AIM stocks could provide a good outcome for the right investor but getting quality financial advice is key and remember don’t let the IHT tail wag the investment dog. Better to let IHT planning using AIM stocks to take place in other parts of a portfolio."
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By GlobalData"Our other concern about a rush into AIM by older ISA investors, is that this could push up share prices to artificial levels, see liquidity tightening and then possibly a sell off in a narrower market – none of which is particularly conducive to ISAs."
