Financial advisers and wealth managers confronted by surging demand for growth investments such as the enterprise investment scheme (EIS) lack the resources and expertise required to help their clients make the right decisions.
That’s according to Charles Owen of EIS investment platform Coinvestor who says financial advisers need much more support as they work with clients interested in growth investments.
The warning comes as advisers prepare to help their clients make the best use of tax allowances and reliefs in the run-up to the end of the 2015-16 tax year in April. Rising investor interest in the EIS has been an important feature of recent tax years and this year looks likely to see this trend continue.
EIS investment in the 2013-14 tax year, the last year for which data is available, increased by more than 40 per cent according to HM Revenue & Customs, and looks set to continue rising. Investors’ growing interest in the scheme is part of the wider phenomenon of surging demand for growth-oriented investments in unlisted companies, as demonstrated by the very rapid expansion of the alternative finance sector. In addition, the widespread anticipation that pension tax reliefs will be further reduced by the Chancellor is boosting interest in other tax-efficient financial planning opportunities, while there is also growing awareness of the EIS’s value for inheritance tax planning.
However, financial advisers and wealth managers for whom the EIS has only ever represented a tiny proportion of business may struggle to help clients achieve their growth investment ambitions, warns Owen.
“Advising clients on making unlisted investments is beyond the scope of many advisers’ regulatory permissions and the industry is going to need significant support if it is going to be able to satisfy the rising demand from clients for the EIS and other similar opportunities,” Owen says.
“Third party research and expertise will have an important role to play in helping advisers and wealth managers to work with their clients, but we will also need to assist advisers as they develop due diligence processes of their own.”
Owen said that many advisers and wealth managers would want to work very closely with new partners who could offer the support their clients needed – particularly where investors are keen to put money directly into EIS-qualifying companies rather than a fund. “Growth investments offer exciting potential but advisers will need help finding the right structures for their clients,” he added.
CoInvestor, which launched in December, provides a new model for investing in growth companies, inviting individual investors to make investments in businesses identified and backed by fund managers, which then offer a co-investment opportunity.