TAX EFFICIENT INVESTING
In partnership with
LightTower Partners’ Jack Rose on how the group’s rebrand is
echoing an evolution in the tax efficient investing sector
Lighting the way ahead
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The tightening of VCT investment criteria announced in the 2017 Budget was welcomed by the tax efficient sector, which had anticipated the government could cut back on relief. Instead, the ‘technical tinkering’ announced by Chancellor Philip Hammond largely re-emphasised the government’s growing support for the sector as a whole alongside its long-standing push towards growth focused, knowledge-intensive businesses, and away from lower risk, capital preservation schemes.
Challenges remain, on a smaller scale. The real definition of what exactly a high-growth ‘knowledge-intensive’ company is remains open to interpretation. Meanwhile, VCTs raising money this year will need to be mindful of whether or not they can find a suitable home for it as new rules mean managers are under pressure to invest their money much quicker from April 2018.
Yet with restrictions on annual pension allowances likely to increase the sector’s popularity in 2018, it is impossible to be disappointed about the sense of pragmatism and encouragement the sector is finally receiving.
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It is a great point in time to reflect on what we are doing with the business and where we want to go
Our clients know we work with some of the leading managers in the space. We sit in the centre of the spider’s web
‘Our core objective is to help grow the tax efficient market as much as possible’
Jack Rose reveals LightTower Partners’ name change this month, marking an evolution in the company’s development and one that is following the tax efficient sector’s expansion as a whole
LightTower Partners is hosting a nationwide series of tax events for advisers.
For more information go to lighttowerpartners.co.uk/events
As he mentions, in a low interest rate environment, with VCTs commonly offering tax-free returns of between 5% and 7%, that is equivalent to between 7% and 9% to a higher-rate taxpayer. It means that these products have an obvious investment appeal.
“I think it is here to stay – obviously with more small changes along the line – but it gives us a great platform to educate and disseminate the message that the government are spreading,” he says.
Moreover, with the sector proving over a number of years to be dynamic and evolving at speed, it opens up the opportunity for an independent voice to offer assistance and guidance regarding product lines whenever changes occur.
“When you add in the environment for private client advisers we are at the tip of the iceberg,” Rose concludes. “The education has to be holistic. You have to understand what the investment can do, not just the financial planning/tax angle. That is as important right now as at any time before.”
In terms of miles travelled, shoe leather worn through and enthusiastic handshakes completed, Jack Rose and the team at LightTower Partners could have put a campaigning politician to shame in 2017.
The tax advisory and education service, formerly was called LGBR Tax, hosted 70 events up and down the country in 2017, attended by more than 240 firms and over 2,000 financial advisers.
Such is the interest in tax efficient products these days that in London, Harrogate, Solihull and Manchester the get-togethers were attended by over 100 people.
“It is a great point in time to reflect on what we are doing with the business and where we want to go,” says Rose, who is head of tax efficient products at the firm. “When we started, we didn’t have the critical mass to have that reach. We started with the big cities with enough of a financial centre to support the interest. And now we are travelling to all points, areas and regions right across the UK.”
LightTower Partners has come a long way in relatively few short years. Formed in October 2012, LGBR Tax as was has ridden the wave of interest in tax efficient products from VCTs to SEIS, EIS, business property relief (BPR) and inheritance tax (IHT) relief and now it is hoping to cement its position in the marketplace with a new brand name for the tax division, to differentiate it from its affiliate, LGBR Capital.
As Rose is keen to point out, the name change marks an evolution in the company’s development, and one that matches the path of the sector overall. “We have seen massive growth in EIS, VCT, IHT and BPR products in the adviser market, as well as growth in investment strategies and number of managers in the space.”
It is worth recapping over what has changed in the intervening period. Renewable energy schemes lost their tax-efficiency status just a few years after the group formed in 2015, in line with the efforts of successive chancellors to further limit and proscribe the opportunities for schemes and investments aimed only at capital preservation.
The way in which the sector has developed in recent years puts LightTower Partners in something of a unique position. “We are really keen we continue to be a multi-faceted business in terms of what we do,” says Rose. “We are very much focused on helping our advisory client base and wider community to understand the implications to the changes, understand where the market is heading from an unbiased perspective.”
He points out that there is “no agenda” to what LightTower Partners is aiming to do. “We don’t have an in-house product,” he adds. “Our objective is to grow the market as much as possible. Our clients know we work with some of the leading managers in the space. We sit in the centre of the spider’s web.”
It helps that at its core, the message LightTower Partners is selling is so central to the country’s future economic prospects.
“The latest changes have demonstrated official support - recognising the value to the UK economy - and that is emphasised by Brexit,” says Rose. “To have a vibrant, dynamic economy driven by the SME community and our tax-advantaged legislation has a key part to play in that.”
This backdrop maximises the opportunity not just for LightTower and its partners, but also Rose believes, the sector as a whole. His impression from talking to the wider community of fund managers and advisers in the tax efficient space is that it is becoming more central to how advisers and ultimately investors view their investment portfolios.
A rising tide
Meanwhile, the emphasis on growth capital and the attempt to channel more investment into start-up and scale-up businesses has been steadily growing. The legislation in 2015, for instance, forced many VCTs to give up on management buyouts and looked to more clearly define the age limit on the companies that could be tax efficient qualified.
It is part of a process of government attempting to channel risk capital and ensure that the tax efficient sector works both for smaller companies, fund managers and investors. The recent Patient Capital Review published in October 2017 and the government’s subsequent response in the Budget hammered home the message that there was real support from policymakers for those offering growth capital to the UK’s SME sector.
“The government has systematically narrowed down what it wants tax-advantaged investing to go into,” says Rose. “That is growth capital, genuine equity risk in young innovative businesses; scale-up opportunities. This last set of changes, especially for the EIS market, has been a real departure, a real fissure in the landscape.”
The changes in the pension regime, meanwhile, have meant that more investors are looking for alternative methods to park their investable cash and are seeing the tax efficient space as a viable option.
The net results of these pressures and changes has meant that tax efficient investment has migrated down from the super-rich to the mass of people using wealth advisers and financial advisers, says Rose.
“Tax-advantaged investment has been around for a long time,” he adds. “We are seeing continued growth both in terms of assets and growth in the number of people looking at this space.”
The evidence is there before his eyes at events LightTower Partners has hosted. “We are seeing new adviser names making enquiries, people coming to the market for the first time, as well as people coming back year-on-year,” he says. “A lot are reaching a critical mass of people wanting to speak to us.”
Taken in totality, the shifting shape of the tax efficient landscape means that the education element of what LightTower Partners does becomes even more important. The company will continue its education efforts into this year with further CPD-accredited events, meet the manager sessions, regular
e-marketing product updates and educational media content, all aimed at furthering the understanding of the sector and the benefits for investors.
CRITICAL MASS: LightTower Partners’ Rose believes that tax efficient investing has migrated from the super rich to the mass of people using financial advisers
Given their respective business models, non-tech companies create more jobs than tech companies
but not as we know it
A renewed focus on ‘knowledge-intensive’ companies should help investors realise that these entrepreneurial businesses are often found in sectors other than biotech or technology
The problem for any government hoping to legislate for investment in scale-up companies, as defined by the Patient Capital Review last year, is it inevitably leads to attempts at definitions which can confuse as much as elucidate.
Take the vexed issue of ‘knowledge intensive’ companies. This is deemed by the current legislation to be companies where a high proportion of staff are educated to a post-graduate level. Should a company qualify, it means it can both receive double the previous investment limit from a VCT and can be older than non-knowledge intensive firms when it receives VCT investment for the first time.
“We all tend to latch on to terms and catchphrases without necessarily having a clear understanding of what that phrase might specifically mean,” says Chris Hutchinson, director of Unicorn Asset Management.
“Even now, there will be plenty of industry participants who may struggle to decide whether a business qualifies as being ‘knowledge intensive’ or not. Therefore there is a danger that almost by default, we become too narrowly focused on supporting early-stage biotech and technology businesses which may offer huge promise and potential, but are still a long way from becoming self-sustaining. HMRC have also now published guidance surrounding measures introduced designed to ensure that investors in tax advantaged schemes are genuinely exposing their capital to risk.
He points to one Titan VCT constituent, Secret Escapes, to make the point that many companies might still be tech-enabled. “It’s a website offering great deals on holidays for customers, with the technology behind the offering providing a more efficient way to deliver those deals to the end user,” he says. “However, it is not a tech company in the traditional sense.”
Many agree that more can be done to lobby the government regarding the impact of VCTs across the economy. Stuart Veale, managing partner at Beringea which manages the Proven VCT hopes the government sees that innovative firms in many sectors can benefit from patient capital and also provide a real payback to the economy.
“This initiative should be welcomed, since it is designed to ensure that funding is directed at companies that are seeking to grow and develop substantially over the long term.”
A VCT review issued in August last year by the Association of Investment Companies (AIC) pointed out that from the instigation of VCT funds in 1995, it was a “bold initiative to encourage the public to invest in small businesses with the capacity to transform the markets they operate in.” Knowledge intensive doesn’t get a mention.
“It’s wrong to characterise VCT and EIS as tech-only investment vehicles,” says Eliot Kaye, investment director at Puma Investments. “They do – and should –support growth businesses across all sectors.”
The Patient Capital Review was very focused on high tech businesses, notes Andrew Wolfson, managing director at Pembroke VCT, and while innovation and technology is “undoubtedly important for the future of the UK”, the government should not forget the non-tech businesses that “don’t receive the same amount of attention.”
“Given their respective business models, non-tech companies create more jobs than tech companies,” Wolfson adds.
“We have never categorised the companies within the Octopus Titan VCT as tech businesses,” explains Paul Latham, managing director at Octopus Investments. “Instead, we look to invest in early-stage companies with quality management teams who have ambition and potential to scale dramatically.”
SECRET KNOWLEDGE: The Titan VCT invests in online business Secret Escapes, a ‘non-traditional’ tech business
Buyouts have been driving steady dividend returns for investors whereas the returns from growth assets have inevitably been more variable
Time is perhaps the most important factor right now for VCTs and the tax efficient sector overall. In this respect the Patient Capital Review was well-named; what the industry needs now is a settling down period which would allow all involved to take stock and adjust. There are also what might be more technical or bedding-in issues. One is regarding what is seen as an arbitrary age limit on the companies VCTs can invest in.
Veale explains: “For example, VCTs are unable to invest in a company if it has ever been part of the same corporate group as a company which exceeds the seven/ten-year age limit, even if that other company has since been sold or closed down.”
The company age issue also has an impact further down the track when it comes to VCTs getting involved in further funding rounds.
“There is a risk that VCTs will invest in qualifying companies with an advance assurance letter from the HMRC, only to find down the track that the company needs further funding but is no longer VCT qualifying,” says Chris Hutchinson, director and lead manager at Unicorn Asset Management.
“This could result in substantial dilution, because although the manager may want to be involved in follow-on funding, this may not be possible because of the restrictive rules. It seems counter-intuitive that shareholders in VCTs might be penalised through dilution, simply because the VCT managers are prevented from offering further financial support to businesses that had previously been eligible for State Aid, but which, under the newly introduced rules, may subsequently fail to meet the criteria required to allow any further funding from VCTs.”
After such clear backing from the Chancellor and with the Patient Capital Review a firm foundation, hopes remain high that further modifications might well be forthcoming.
Settling in period
Much of what has been brought into effect by the Budget are ‘technical’ changes which will have no impact on the investors. Additionally, the changes are mainly centred on the (somewhat controversial) focus on knowledge-intensive companies.
David Hall, managing director at YFM Equity Partners, which runs the British Smaller Companies VCT range, believes the effects of the rule changes are still working their way through the system. He comments that with a lot of VCTs largely investing in buyouts - maybe 85% buyouts and 15% growth capital - buyouts have been driving steady dividend returns for investors whereas the returns from growth assets have inevitably been more variable.
In moving to steer VCTs away from a reliance on buyouts, the government is more clearly pointing the funds in the direction of growth investing and the move has meant that for some managers (though by no means all) a degree of realignment and adjustment is now needed.
“We are in a transition period right now,” he says. “The old-style buyouts still make up a substantial portion of the portfolios.”
While the changes won’t mean anything for the underlying companies, it might mean the VCTs hold on to some of those assets for a bit longer than they might have previously.
“It is important for advisors and investors to understand the investment strategy of the VCTs they are investing in, and the experience the manager has of making growth capital investments,” says Stuart Veale, managing partner at Beringea, which runs the ProVen range of VCT fund. “For some investors, like ourselves, the rule changes have had minimal impact, as we have been investing exclusively in growth capital investments for many years.”
All change please
John Glencross, chief executive and co-founder at Calculus Capital says that a clear indication from the manager of their track record can help clarify thoughts. “The important point is that investors are given a clear understanding about what investment strategy a VCT will pursue and what the team’s experience is in being a growth investor,” he says.
“The Calculus VCT has always followed a growth investment strategy because of our origins as an EIS investor. The Treasury has made it clear what type of investment it expects to see going forward. That message is gradually being disseminated.”
In addition, if the extra £7bn of VCT investment is to be unlocked, then work needs to be done to further the understanding of what investors are putting their money into.
Dr Brian Moretta, head of tax enhanced services at independent research house Hardman & Co, says: “There are some who are very knowledgeable and experienced, and a large part of the money already invested comes from those sources. [But] there is still a large part of the advisor community whose knowledge is limited. There have been several efforts, from both EISA and some providers, to improve knowledge. This is happening, but it takes time.”
Post-Patient Capital: ‘We are in a transition period now’
The sector will need time and a ‘degree of adjustment’ if it is to steer away from its reliance on buyouts and move towards growth investing over the long-term
Ahead of the long awaited results of the Patient Capital Review in October 2017, the VCT sector had expressed concern that ideas might be put forward to either limit or replace the associated tax benefits or otherwise further meddle with the terms of investment.
It was an understandable concern: the regime around VCTs has been adjusted and amended many times in recent years, not least in 2015 when new rules designed to limit capital preservation schemes were introduced.
As it turned out in this case, the VCT sector needn’t have worried. The report pointed out that the UK is in many respects a “great place to start and grow a business”, in part because of the tax efficient landscape of SEIS, EIS and VCTs. Further, it recommended extending the investment limits for both EIS and VCT.
The good news for the industry was that the government immediately endorsed the findings by the expert panel, which was led by Sir Damon Buffini and including investment luminaries such as Gervais Williams from Miton and Neil Woodford.
In his Autumn Budget statement last year, Chancellor Philip Hammond echoed the recommendations, particularly regarding the doubling of investment limits in both EIS and VCTs which he believes will unlock a further £7bn of new investment, primarily in high-growth companies.
Paul Latham, managing director of Octopus Investments which runs the Titan VCT, the sector’s biggest fund, believes Hammond’s words had been “keenly anticipated.”
“The Chancellor’s statement clearly set out the government’s support for initiatives that back the UK’s smaller and entrepreneurial companies, the backbone of the UK economy and in particular highlighted the important role that VCTs can play in providing start-up companies with the funding they need to reach their growth potential,” he explains.
Capital preservation is hugely important to us because we understand how quickly people can lose money in difficult market conditions
We are focused on those undiscovered opportunities that remain under-researched and hopefully under-valued
The key to Unicorn’s success in Aim
Defensive and resilient:
Chris Hutchinson, director at Unicorn Asset Management, reveals how the group has retained a conservative approach to investing even when dealing with Aim’s early stage and smaller businesses
He illustrates this point by using the example of Anpario, a company that Unicorn AIM VCT first invested in over ten years ago, and which is now held in the IHT portfolios as well. Anpario is a specialist in the manufacture and distribution of natural animal feed additives. Over the years it has grown to become a substantial, profitable and cash generative business.
“In 2008 Anpario was valued at around £3m; at that time it generated about £5m in annual revenues, was marginally profitable, and employed twelve people in total. Today, Anpario is valued at more than £100m and successfully sells its products in over 70 countries worldwide. It is still a small business, but the opportunity for sustained growth is huge, both in terms of the types of animal feed additives it sells and in terms of international expansion.”
Hutchinson adds: “It is a classic example of a business that, on the surface might look quite dull, boring and possibly not terribly high growth, but in fact has the capacity to deliver consistently high growth over many years. Anpario is a business we know extremely well and is run by a management team that we respect and trust.”
Unicorn today has circa £300m of its £1.2bn in assets under management invested in Aim stocks, with the group’s AIM VCT £200m in size and also one of the most consistent long-term performers in the sector. The Unicorn AIM IHT Portfolio Service, though only two years old, has also seen its growth portfolio deliver in excess of 50% since launch, while the income portfolio is generating an annualised yield of 3.1% and delivering strong capital gains.
“It is important to stress that we are the investment advisers, and our primary role is to identify suitable candidates for inclusion in the portfolio and then to monitor and advise as each portfolio develops and matures. Therefore, the resilience we build into these portfolios is hugely important to us. It brings it back to that fundamental approach to investing in ‘proper businesses’ and finding sensible opportunities to invest in at a reasonable price; a philosophy that has always held Unicorn in good stead through various periods of ‘boom and bust’ in equity markets.
“I am confident that we can continue to find really interesting, sensibly priced, AIM-listed businesses to invest in that will help grow our portfolio service substantially over the coming years.”
The Aim market delivered a year-on-year return of 26% in 2017; one of its best performances of the past decade. Despite this, the index continues to be shunned by some investors as a ‘risky’ market. In recent months, concerns that too much money is chasing too few stocks has led to fears that some valuations are out of sync. This may be as a result of a rise in the number of IHT strategies focusing on investing in Aim stocks that qualify for business property relief, which can assist investors in mitigating tax on death.
According to Chris Hutchinson, director of Unicorn Asset Management, there is no doubt there is an increasing weight of money chasing Aim stocks following government rule changes in 2013, which allowed investments in Aim shares via an ISA. A number of innovative IHT strategies have been launched by providers since. However, the notion that the index is in ‘bubble’ territory is just one of the many misconceptions that has plagued the market in recent years.
“There is a slightly superficial view of Aim that every company on the index is high growth, early stage, and pre-revenue. In reality, Aim has matured,” he says. “Today it is a thriving index for younger companies, and there is a wider acceptance among fund managers that it offers some of the best high quality investment opportunities available.”
The Aim index is a specialty of Unicorn Asset Management. Consolidation in the fund management industry has resulted in fewer managers participating in the Aim market in recent years. Unicorn has remained a specialist manager committed to this smaller sub-market of the London Stock Exchange, however.
Hutchinson himself has managed the group’s main AIM VCT for over a decade, though it has been in existence for 18 years. The Unicorn AIM IHT, a discretionary portfolio service, was launched in 2015 and is designed to mitigate IHT liability after two years by investing in stocks on Aim that qualify for business property relief. The group offers two portfolios under this service, an income portfolio that offers quarterly dividend payments, and a growth portfolio. Both are managed by Hutchinson, in collaboration with two of his Unicorn colleagues.
Though he characterises the early years of Aim as being akin to a lightly regulated “wild west” of asset management, Hutchinson argues that Aim has now matured. Meanwhile, Unicorn has always been a notoriously conservative investment firm, particularly in its approach to how it manages money in smaller companies over the long-term.
“All too often, investment is over-complicated. But we have always stuck to some basic fundamental rules about what we define as a ‘good’ business, and those criteria do not change,” he explains. “Capital preservation is hugely important to us because we understand how quickly people can lose money in difficult market conditions.”
To emphasise this he references the financial crisis a decade ago and the subsequent recession that followed. Losses on Aim during 2008 reached a “painful” -62%. The Unicorn AIM VCT’s average loss, over the same period, was a more pared back -32%, however.
“When you compare our performance to that of the Aim index during difficult market conditions, you can see the benefits of the defensive approach that we try to implement in our portfolio construction. We do not chase the ‘popular’ stocks on Aim. We are not trying to shoot the lights out. We accept that if we back the best, most consistent smaller businesses, we should be able to deliver very healthy returns over the long term.”
In both the Aim VCT and IHT portfolios Hutchinson aims to uncover opportunities at an ‘earlier stage’, or smaller businesses which are not as well researched or understood. The portfolios only invest in “one or two” of the dozen or so ‘larger’ businesses that accounted for around half of total Aim index returns during 2017.
“We also try to construct portfolios that look a bit different from many of the other AIM IHT providers. We run concentrated portfolios, of around 30 high conviction stocks in both the income and growth strategies. We are focused on those undiscovered opportunities that remain under-researched and hopefully under-valued. This is an area where our experience of actively managing Aim stocks over almost two decades is able to provide a unique point of difference.”
The group’s AIM VCT often represents a perfect starting point for finding investments that are suitable for the IHT portfolios because of an established depth of knowledge, experience and history that Hutchinson and his team have already built up. The IHT portfolios’ investment universe is limited to the 430 or so stocks listed on Aim that pass Unicorn’s strict internal screening process for qualification under business property relief rules. However, unsurprisingly, there is significant commonality within the constituents of the income and the growth portfolios when compared with Unicorn’s AIM focused VCT.
As at 30 September 2017
Minimum investment: £50,000
Weighted Average Market Cap: £460m
Total returns since 1 February 2016: 50.6%
Dividend income paid: Quarterly
Average Historic Yield: 3.5%
UNICORN AIM IHT ISA PORTFOLIO SERVICE
GROWING ASSETS: The Unicorn Aim IHT Portfolio Service has seen its growth portfolio deliver in excess of 50% since launch
We think of GrowthInvest as a centralised hub where advisers can do everything they require
The target return on the blended SEIS/EIS portfolio is £2 for every £1 invested, net of all fees. We intend to achieve this outcome over an average of five years.
Q: What is the targeted return?
Our investment strategy is generalist, we look to build portfolios that are as diversified as possible. Investors can select an SEIS or EIS only portfolio, or a blend of the two. We aim to deploy funds into all companies within a given vintage at the same time and provide clarity on when this is.
We are also very proud to have launched the GrowthInvest Portfolio Service Regular Saver. This facilitates monthly contributions from investors and is proving very popular with those clients impacted by pension lifetime value restrictions.
Q: How is the portfolio structured?
Investment Universe: In a world where diversification is increasingly important, we provide advisers a single environment to research, compare and then invest into an ever-increasing universe of tax efficient products on behalf of their clients.
Asset Consolidation: Advisers are able to register and consolidate historic investments. This enables them to provide accurate and comprehensive portfolio management and reporting across the entire tax efficient sector. It also removes the need to contact multiple providers for updates, valuations and HMRC documentation, as well as providing greater transparency on the underlying investments
Integration: We think of GrowthInvest as a centralised hub where advisers can do everything they require. As such, we provide simple integrations and links to third party analysts, Companies House, HMRC and adviser back office solutions.
Q: What are the three best features of your platform for advisers?
The Portfolio offers advisers and investors diversified access to the very best companies that have listed on our platform. We review hundreds of applications per annum, only list around 30-40 on the platform and invest in only 5-10 per vintage.
We specialise in companies that have a small amount of revenue but are not quite large enough to be of interest to the Venture Capital world. Within this ‘Seed’ stage investment we feel there is the ability to deliver large returns by working closely with portfolio companies. Alongside this we have strong relationships with later stage investors, with whom we always work to curate an exit opportunity where possible.
The portfolio will only consist of companies that we have conducted significant due diligence on, and that we know we have people within our network that can help them to succeed.
Q: What does the GrowthInvest Portfolio Service offer advisers and their clients?
I believe that investment in young companies, alongside the tax reliefs available, represents a realistic portfolio choice for suitable investors seeking portfolio growth. I also feel there is the potential for significant growth in the market, alongside the scope for technology to improve the efficiency and transparency of the market as a whole. I have direct experience of this having transitioned a previous business from open ’outcry’ floor-based trading to the highly-efficient screen-based trading that exists today.
GrowthInvest was originally founded by a wealth manager and the platform was designed for advisers. We believe the tax efficient arena is one where advisers can add real value to client portfolios and that more advisers should be using these products. For that to happen we needed to provide support, education and an environment where advisers can manage their tax efficient business in a simple and familiar way and therefore provide the best level of service to their clients.
Q: What attracted you to work in this space, and to build the GrowthInvest Platform?
I was a founding investor in GrowthInvest, then named Seed EIS Platform, back in 2012. I had been working in the equity derivatives market for 16 years prior to that, initially trading institutional capital then managing trading businesses. I began investing in early stage EIS companies around 2005.
Q: How long have you been involved with the tax efficient investments?
Managing tax efficient businesses simply
Dan Rodwell, managing director at GrowthInvest, explains why more support and education is needed in order to help advisers make better use of opportunities in the tax efficient universe
An evolutionary moment
An evolutionary moment for tax efficient platforms
Investment in the VCT sector has traditionally lagged in terms of the technology and infrastructure available for investors. This is finally changing, says David Lovell, operations director at GrowthInvest
As the politicians make their various, mostly unfounded, claims on the best route forward for the UK post-Brexit economy, there are few on either side who contradict the suggestion that small UK businesses, the start-ups and the scale-ups, are likely to be at the heart of any future thriving UK economy.
The UK’s thrusting technology and IT sector is well-regarded across the globe, and the Autumn Budget has confirmed and enhanced the government’s support to growth businesses and investors through the EIS and VCT markets. The investment infrastructure for this sector is now also changing and there are several factors behind the emergence of tax efficient investment platforms.
A recent adviser survey that GrowthInvest conducted on behalf of EISA showed that over 52% of advisers thought they were likely to do more EIS and tax efficient investments than in previous years. The HMRC is already seeing an increase in revenue from savers who have exceeded their lifetime allowances and a sensibly managed tax efficient portfolio, with clearly managed risk should become a much more commonly seen retirement solution.
A client solution this powerful needs to be properly managed on a platform that allows the adviser to focus on the advice and the investments. The technology is clearly available, and the time is right.
GrowthInvest has looked to the traditional adviser platforms for inspiration: both by focusing on facilitating a wide range of investments across EIS, SEIS, VCT and IHT products, and by making available a consolidation and administrative service. The adviser, whether familiar and experienced in tax efficient investments or a relative newcomer, can now access a solution that matches their experiences in other areas of their businesses.
The current position for tax efficient investments has many parallels with the initial adoption and use of adviser platforms 15 or 20 years ago which, despite initial resistance from some advisers and fund managers, now sees over 90% of investment and pension flows through financial adviser marketplace. Most of this flows through one of the 15 or so specialist adviser platforms, many with subtle and slightly different market propositions. These trailblazers have ensured there is a clear and well-understood set of benefits for advisers and their clients to use platforms: including transparency, flexibility and investment choice. They also allow the adviser to lessen the administration and focus on their job. The client gets a cost effective and clear view of their portfolio. Nearly exactly the same service is now available in the tax efficient market.
The Patient Capital Review and the subsequent Autumn Budget have absolutely focused on growth investment. The tightening of the rules around qualifying companies, inevitably means there is a general move up the risk scale. While government shares in this risk through tax advantages, the only real way to manage risk is to ensure that there is proper diversification across a client’s portfolio. This should mean diversification across product providers, sectors, as well as the underlying investments. The best and easiest way to do this, while clearly demonstrating that a wide range of investment options have been considered, is on a platform.
There is a growing acceptance among product providers that allowing their clients to use the available technology to make investments in a manner in which they chose is perfectly reasonable.
The last 12 months has seen a change in attitude and there are a number of good initiatives at play. These include proper integrations with adviser’s back office and online systems, and proper online applications. Online document storage, portfolio valuations and access, an easy-to-use client portal, are becoming minimum standards and expectation. The HMRC continues to work closely with trade organisations and key industry players to bring processes into the 21st century and away from a reliance on the Royal Mail.
NEW TECH: The last 12 months has seen a change in attitude towards tax-efficient platforms and there are a number of good initiatives at play
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