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As well as assessing clients’ suitability
for a BPR solution, advisers must also
assess the range of products in the
market; carry out due diligence and
select the best investments for their
clients.
In assessing the products, there are
a number of areas advisers need to
cover. By reviewing and documenting
their assessment of each of these
areas, we believe advisers will be able
to feel confident they have a thorough
research and due diligence process on
record.
The first step will be to assess the
providers operating in the marketplace.
Note that most BPR product providers
are also likely to offer EIS and perhaps
VCT investments as well (and their
assets under management may reflect
this), so their boards and investment
committees will be looking at this bigger
picture and expertise will be spread
across these market segments.
THE FIRM
Fundamental information to be
collected will be the firm details,
inception date and ownership structure,
which will give an indication of its
financial strength. Financial stability is
important because if the operating firm
is not around when the investor passes
away, untangling the mess of ownership
of the assets will be a tortuous process
- much more so than in the mainstream
investment universe and funds could
be lost and never recovered. Advisers
should examine the providers’ balance
sheets and assess their exposure to
debt, current revenues and profits.
The composition and experience of the
board and investment committee and
any turnover they have experienced
should be looked at, and any key person
risk identified. Finally, the current levels
of assets under management, market
share and progress on these two
metrics over the last few years should
help advisers to form a view on their
development and ambition as a firm.
Advisers will need to take a view on:
The risks and benefits of bigger firms
with more resources to draw on versus
smaller, more specialised firms
How much value they put on an
experienced and stable team
Where a firm’s growth is coming
from, and if that poses a risk or is a
positive development.
These are as much subjective as
objective assessments, with no explicit
right or wrong answer, but the thought
process that advisers go through to
reach their conclusions should be
documented.
THE INVESTMENT
PHILOSOPHY
All investment firms will have an
investment philosophy and an area
of specialisation. Some will consider
themselves expert small company
investors and rely upon thorough
fundamental analysis of the firms
they invest in. Others will specialise in
a particular sector - renewables has
been a popular one over the last few
years for example - and rely upon their
intimate knowledge of the opportunities
and threats it faces, their contacts
and relationships and their business
acumen acquired through experience in
the sector.
It will be important to understand
the firm’s research process, what
their investment criteria are, what
they include within their investment
universe, what filters they apply and
how many potential investments they
screen versus how many investments
they ultimately make each year.
It will also be important to understand
the firm’s likely threshold of investment
per annum i.e. how much they can
raise and deploy in a given year without
having to compromise their investment
criteria and quality of the investee
company.
Advisers will need to take a view on:
The likely success of the firm’s
investment philosophy
Whether they have a preference for
a specialist or generalist
The firm’s level of skill and
experience in their chosen areas of
investment
The strength and rigour of the
research process
Their limits on annual fund raising,
deployments and performance.
As above, these are as much subjective
as objective assessments, with no
explicit right or wrong answer, but
the thought process that advisers go
through to reach their conclusions
should be documented.
PAST PERFORMANCE
Although risk warnings repeatedly
tell us that past performance is not a
guide to future returns, it should tell us
something about the investment skill of
the firm and it would be remiss not to
look into performance at all.
When looking at BPR investment
products, it is important to keep in
mind that the two main objectives are
capital preservation and IHT mitigation,
so when it comes to past performance
the key is on-target performance that
keeps up with inflation (rather than
outperformance) and 100% track
record of qualifying for BPR upon the
death of the investor - this is assessed
individually on a case-by-case basis
with each application, so can never be
guaranteed by the provider.
ASSESSING BPR PRODUCTS
PRODUCT REVIEW
Key features and fees
Strategy/Philosophy
Investment process
Portfolio & pipeline
Risk management
Performance
MANAGER
REVIEW
Profile
Stability
Track record
Governance
INVESTMENT
TEAM REVIEW
Profile
Stability
Track record
Governance
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Source: AllenbridgeIS
