EIS guide

54 55 CASE STUDIES RESEARCH AND DUE DILIGENCE Legal and regulatory status For single company EIS investments, the shares are typically held in the investor’s name. However, in an EIS fund investors’ shares are typically registered in the name of a nominee company, although the investor will remain the beneficial owner of the shares. EIS funds may be structured as MiFID discretionary portfolios or as alternative investment funds. Further information on EIS structures can be found on page 37. For the purposes of the Retail Distribution Review (RDR), EIS funds are considered to be retail investment products and, therefore, advisers cannot receive adviser commissions. However, EIS managers may facilitate adviser charging, as agreed between the investor and their advisers. As EIS funds (or single company investments) are not regulated funds, they are NOT covered by the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS). Key Information Documents Although not specifically mentioned in the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation, EIS funds fall under the definition of venture capital investments, which would classify EIS funds as PRIIPs. This means that the EIS manager must issue a Key Information Document (KID), designed to help investors to better understand and compare the key features, risk, rewards and costs of different PRIIPs. Advisers should be aware, however, that there has been significant discussion regarding KIDs because of concerns that the regulation is not drafted in such a way to create consistent results that do not mislead the consumer. In an effort to deal with this issue, in 2019 the Joint Committee of European Supervisory Authorities (ESAs) issued the following new wording to be included with KIDs: “Market developments in the future cannot be accurately predicted. The scenarios shown are only an indication of some of the possible outcomes based on recent returns. Actual returns could be lower.” In its 2019 Annual Report, the Financial Conduct Authority confirmed: ”We will continue to work closely with the European Supervisory Authorities and the European Commission (subject to the nature of the UK’s relationship with the EU) as they conduct a full review during 2019 of the Regulatory Technical Standards under the Regulation. The review will primarily focus on improving how risk and reward are displayed in the Key Information Document.” Case studies Disclaimer The following case studies are designed to demonstrate a number of different scenarios that might apply to certain prospective investors. Nothing here should be viewed as advice. Advisers should consider, among other things the impact of charges (including any initial fees as well as annual charges) and the quantum of tax relief that might be available to a particular prospective investor. Any suitability decisions should be based on a comprehensive review of a client’s objectives, needs, capacity for loss, investment experience, and attitude towards risk.