In yesterday’s Autumn Statement, George Osborne said that there would be a consultation on the proposal, which it is hoped will encourage investment into growing businesses.
Companies listed on the AIM (Alternative Investment Market) have fewer regulatory requirements than their large cap counterparts and are usually seen as less liquid and more risky.
However, Adrian Lowcock (pictured), senior investment manager at Hargreaves Lansdown, says that it is a logical step for the stocks to be included in ISAs because investors can already use the tax wrapper to gain exposure to areas of the market that are just as volatile.
"I think where we are with this is that AIM shares were seen as too much of a risky investment when ISAs were brought in, but the investment universe has moved on," he said. "Nowadays, investors can access exchange traded funds and gain exposure to emerging markets and frontier markets through their ISA; these are arguably just as risky as AIM shares. So I think the AIM being left out is a bit of an anomaly, almost a piece of legacy legislation."
"It makes sense as the main concept of investing is that the greater risk available will allow for the greater reward. Also, if you can gain exposure to these risks with tax benefits, it is certainly a good idea for some."
Gavin Oldham, chief executive of The Share Centre, has pushed for AIM shares to be made available through ISAs for some time and argues there is no acceptable reason why the measure has not already been implemented.
"For years, we’ve asked for a review of the stocks UK investors have access to through their ISAs."
"Critics have argued that AIM stocks offer a level of volatility which individual investors should be protected from. However, many investors already access shares with very similar risk and volatility profiles through investing in the small cap market."
Oldham believes that this measure will not only be beneficial for investors, but will also lead to growth in the smaller end of the market.
"There is a strong economic case for allowing personal investors greater access to the AIM market. Osborne’s comment that 'Britain is open for business' should mean that UK investors get a greater chance to invest in UK companies."
"This change would bring a new lease of life to the AIM secondary market, enabling AIM-listed shares to raise primary funding more easily. At a time when many of these companies struggle to secure bank loans, access to equity finance is important."
"There’s no doubt that the benefits for investors are considerable," he added.
Although Lowcock believes the rule change is a good move, he says investors should approach this area of the market with caution.
"The AIM market won’t be suitable for all investors. They must understand that the AIM is a hugely volatile area of the market that is subject to changing market trends. What we have seen recently is investors pile into mining stocks, basically hoping for the next big exploration discovery."
"With individual shares, the performance over time can be very up and down. One year they could make 100 per cent, the next they could lose 95 per cent. So the chances of making money should also be balanced by the possibility of losing it."
Therefore Lowcock advocates a diversified approach to including AIM shares in investors’ portfolios, preferably through a proven stock-picking fund manager.
"Investors can already access the AIM market indirectly through certain funds anyway."
"What you want is a top stock picker who can make that decision for you. A quality active manager adds so much value to your portfolio, but you also need a good adviser or analyst to make sure you get the best out there."
"Basically, you need them to separate the wheat from the chaff," Lowcock added.
Paul Mumford, who manages the Cavendish AIM fund, agrees that the plans are to be welcomed, but adds his voice to those calling for caution, suggesting that investors consider a portfolio such as his rather than investing directly.
"There are many incentives to holding AIM shares in an ISA, but the AIM market is a risky market and investors would be wise to have a spread of interests in their portfolio," he said.