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EIS – Education, information, simplicity


 

Three words kept being repeated during our round table session kindly hosted by Hambro Perks – ‘transparency’, ‘research’ and ‘education’. All attendees agreed that each of these is vital, and they unanimously declared that there is still a lot of room for improvement.

The challenge of charges

Stephen Jones, Chartered Financial Planner at Clear Solutions Wealth and Tax Management, identified transparency as one of the key issues in the EIS market: “There is a lot of work about EIS and Hardman & Co. has provided evidence about the range of charges and there are different descriptions of charges, which is leading to transparency with providers.

“Most people don’t understand the range of charges and how to analyse them. There is the personal issue with carrying interest and people are quiet about it.”

Andrew Aldridge of Deepbridge totally agreed: “There is a range of fees and a range of terminology of fees – it’s an ongoing industry discussion. There is a myriad of providers who are disclosing what they charge investors, but perhaps not what they charge investee companies.

“Charges to investee companies is not simply comparing apples with apples; there is a difference between smart capital and dumb capital. Is it passive capital or is the company getting added value from the manager?”

He went on to explain the difficulties of trying to compare like with like, even when looking at his peers. Transparency and disclosure are issues that we advocate and that everybody in our sector needs to take on board. On the plus side, he said the situation was a lot better than even just a few years ago when trying to unravel what exactly was being charged was like trying to tackle the Gordian knot without a sword.

Nick Sharp outlined the Hambro Perks approach: “Our view is that if we are working for our investors, they should pay our fee. It is easy to have a market proposition. These are small growing companies which need money – if you take out 10%, you aren’t doing them any favours nor, ultimately, are you helping investors. That is an absolute no-no.”

He expanded on how they will charge investors those fees while providing capital to the companies to allow them to grow. Some paid fees he finds surprising; he has co-invested with other funds and on the investment documents they are investing at a different price to provide money back to the fund manager.

“If we pay 9p and they are at 10p that’s just not on.”

Research rules

Replying to a question about how quickly was it possible to judge that a client was suited to an EIS investment and to select the right product, Roger Tull, IFA at Positive Solutions reckoned it was easier now than it used to be.

“If you go back, all you did was get half a dozen prospectuses that were 30 or 40 pages long. How do you make sense of that? The emergence of platforms is a big help to us in terms of assessing what is the market. It’s healthier now.”

Nick Baker of Baker Jenness Financial Management highlighted the importance of decent research: “It’s hard to find – I had to badger Octopus for it. We rely on quality research. Internal research and product information is great, but we all know it is not enough. Having the independent analysis alongside gave me the impartial point of view so, here is more history and more information on what we are getting involved with, for ourselves and for our clients.’”

Jack Curzon, Consulting Director of Thomsons Online Benefits suggested that while research can be very useful, sometimes “opinionated experts are easier for people to digest. Often research is too advisory when it’s an expert opinion you’re after. There can be too much caution and hesitation when you read the research; the stuff people really want and need to hear often doesn’t come through.”

Financial Planner Stephen Jones added that this is where the analyst adds value, because it’s essential you have time to do due diligence. “I would expect to see a report, so I can take a view on the area of investment. Years ago, sitting down to try and find out about something was very different. Today, the track record is about the people at the top. If they aren’t impeccable, I’m not interested.”

You can teach an old dog new tricks

Chair Richard Angus, Head of Business Development at Hardman & Co., asked Andrew Aldridge of Deepbridge how, in view of their success in the EIS market, they felt the landscape is changing.

The answer was pretty unequivocal.

“Our growth over the last 5 years is down to education. If you see us speak at an event, we aren’t doing a hard pitch about our product. It’s about educating advisers and investors about the changing world of EIS. It’s about the Patient Capital Review, supporting innovation and job creation. We try to bring it to life.

“One of our most memorable events was about 18 months ago in Glasgow, which we called ‘Investing in Scotland’. We had invited Scottish investee companies to join us in order to showcase that EIS is not just a London or Westminster thing, but about creating and supporting jobs and innovation in their own back yard.”

“It’s that type of education that really benefits advisers and investors. Tax might be the initial reason to consider EIS, but when you see the extent to which EIS investment is a genuine economic driver, advisers become aware that it’s about going way beyond tax.”

Stephen Jones concurred: “One reason Octopus is successful is that they have invested in the education stance. They do seminar after seminar. If you’ve been educated by them, it will have worked well and of course, many advisers don’t have that budget and I do appreciate that there are other parties, but there needs to be more.”

The nature of an EIS investment has always involved a degree of exclusivity, but many advisers have clients who might benefit – without either of them being aware of it.

“One of my clients, her brother needed care and he had a £2 million second property which created a huge CGT issue on its disposal”, recalled Nick Baker. “I knew a little about EIS then, but it wasn’t easy to go to a central place such as Synaptic for research. It is easier to get information now and some advisers are open to learning more but there is still not enough education around this product area.”

Adam Francis, Consultant with Mattioli Woods, noted that “It’s also about changing customer attitudes. We are investing in long-term growth. Growing 5% a year with pension, do you want to invest in young companies? This is long-term money.

“The worry is that one might only look at fantastic track records and for a client to take that at face value and assume their money is safe. The underlying investment is 5 years down the line and they expect that is what they’ll get so it is important that they understand diversifi cation to mitigate risk.”

Coming up next…

Deepbridge Capital and Hambro Perks introduce 2 of their investee companies , Rajiv Mathur of Chainvine (blockchain) and Ollie Povey of Tempo (recruitment) respectively. Both gave a fascinating insight into the coal-face of capital investment and impressed everyone present with their passion, conviction and determination, as we shall report.

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