We explore the group’s views on how advisers and their clients can benefit from incorporating alternative investments into clients’ portfolios.
Q: The UK has always had a strong start-up and entrepreneurial culture, what would you put that down to?
I think the UK is a great place to both do business and invest into it. It’s not just UK investors putting their money back into the UK, but it’s a great pull for money from across the globe. This falls into a few categories. There’s government support from the EIS scheme, that allows huge amounts of private capital to go into early stage businesses and helps mitigate some of the risk that the early stage companies present. It also provides opportunity for investors to broaden out and diversify their portfolio. Government support is really key. UK universities with their academic excellence also play a huge role in the digital economy. They provide a skilled workforce to take advantage of new opportunities as they come through. There’s a huge amount of focus on supporting and investing into the regions – it’s not just about London. Initiatives are going on to support regions and pushing money into businesses and companies all over the UK.
Q: You mentioned EIS as being a key support factor in the UK’s entrepreneurial culture. Are there any fears that future government changes could undermine the effectiveness of various schemes and the EIS in particular?
It’s always a concern that the government might look to make changes around EIS. In the Chancellor’s most recent Budget there was potential for change but no amendments were made. I’d be really surprised if the government decides to change the way the scheme works. Throughout the last twenty five years it’s been a hugely successful vehicle for taking private money and really pushing it down into early stage companies. That’s where the value and the recovery from the impact of Covid is going to come from. It’s going to be these new companies that are adept at exploiting opportunities that are presented and created. If, however, the government begins to disincentivise the money by not supporting these companies, or by making tax changes in the short term, then they’re only harming themselves.
The government can’t foot the entire bill for the Covid recovery, it has to come from a much broader base and really, the EIS scheme is a great way of channelling that money into the future. So I’d be surprised if they make any changes.
Q: If you could implement positive change in the scheme, which areas would you suggest that the government looks at?
I think positive change sometimes means doing nothing. The temptation is to change just for the sake of it. My key message to the government would be to not change this, as it is going to be one of the engines that will help fuel economic recovery within the UK. I think that the tax breaks are set very well. One suggestion might be to relax some of the qualifying criteria for some of the companies to access EIS tax reliefs. I think the patient capital review did a very good job but ultimately it has limited the scope of EIS quite considerably from where it was five years ago.
Q: Looking at these EIS schemes specifically in regards to clients’ needs, how can EIS investments continue to develop or diversify client portfolios?
EIS is an alternative asset class and it is designed as an accompaniment to core financial planning. It is providing the potential for tax efficient investing which is actually limited in what I would consider a modern standard portfolio. But it’s really providing some serious, high potential growth where current markets may have a more stagnant element to it where there is a level of uncertainty. This could be a real driver for advisers to build out their own businesses and also to build out that growth element for clients within a modern investment portfolio.
Q: Do you think that after 27 years, advisers and their clients are more savvy about EIS and SEIS?
I think they are becoming increasingly savvy. This is a much more mature market when you look at the number of companies that are offering this investment. It is significantly greater than when Oxford Capital started 20 years ago. I think one benefit of having a much broader marketplace is the level of research and information that advisers and clients can get access to. It’s much more readily available. There’s a much greater capacity to compare and contrast managers’ approaches and the underlying performance of portfolios. I think there is a much greater knowledge level within the advisory community and with investors but we can continue to improve. We are strong supporters of providing advisers with collateral and information to help them better understand EIS tax relief and how that could be used, but also how investing in the venture capital market really works. I do think however, that advisers are sometimes slightly missing a trick when it comes to how to use EIS to build their own businesses. I’ve used a dinner party conversation as an analogy in the past. As you can imagine, it’s very rare that you’d ever go out with a group of friends and talk about investment allocations in pensions. However, when it comes to EIS investment and making direct investments into small companies, that’s a completely different kettle of fish. The emotional connection is so much greater. You can imagine somebody saying to one of their friends, let me tell you about this fantastic tomato-picking robot company that I’ve just been invested in, or about a driverless technology car company and that’s something that people can really associate with. And because it’s new, it’s innovative, and it stimulates conversation it will, in turn, stimulate referrals and new business for advisers. If advisers can really understand both risk and the opportunity in venture capital, they can leverage that interest to build their own businesses.