BR Guide Second Edition

25 24 BR INVESTMENT OPTIONS BR INVESTMENT OPTIONS Market conditions are very important as there is a risk that AIM can be affected when the mainstream markets panic. Increased levels of liquidity must be considered in the context of potentially increased levels of volatility. Finally, AIM has not been the most reliable performer over the last few years. However, as with any market, the volatility of the headline index measure can mask the performance of some of the underlying constituents. Therefore, AIM’s overall performance is not a reason to shy away from AIM based estate planning services; it just means it must be approached sensibly. There are some household names listed on AIM, such as ASOS, Majestic Wine and Mulberry. The underperformance at the market level can be attributed to the high number of IPOs and resource companies on AIM, and the inevitable exposure to investment fads. FIVE-YEAR PERFORMANCE - TOTAL RETURN (GBP) FTSE AIM 100 FTSE AIM ALL-SHARE SOURCE: I FTSE RUSSELL FACTSHEET, 30 APRIL 2019 70 90 110 130 150 170 190 APR 14 APR 15 APR 16 APR 17 APR 18 APR 19 FTSE AIM UK 50 Suitability Considerations: DECIDING BETWEEN AIM AND NON- AIM BR INVESTMENTS Advisers should consider the various features of AIM and non-AIM BR investments and how listed assets differ from those which don’t appear on an exchange when assessing suitability. Some of those considerations are listed here: Non-AIM AIM INVESTMENT SCOPE Managers have flexibility in identifying suitable investment opportunities via unquoted/unlisted trading businesses Managers are constrained to investing in qualifying businesses on AIM. There are approximately 900 (LSE, August 2019) firms on AIM and not all qualify for BR DIVERSIFICATION Investment is often made into one or a small number of unquoted/unlisted businesses. Diversification of trading activity and sector/asset type occurs within the investee business/es Portfolios are typically diversified by investing into c.15-40 AIM listed companies. AIM portfolio services generally exhibit higher sector diversification than non-AIM MANAGER CONTROL Sometimes BR managers get a seat on the board of their private company investees, or they own the investee company AIM listed companies are obliged to provide regular reporting and follow governance rules, so there should be transparency, but managers generally don’t have the benefit of a seat on the board ASSET SECURITY Non-AIM investment services often target asset owning businesses or lending businesses that take security over real assets AIM portfolios invest into growth orientated investee companies. They do not actively target asset backed businesses VOLATILITY Non-AIM services generally channel investment into businesses with stable revenue streams and valuations. Unquoted/unlisted companies are not at the mercy of market sentiment and the possibility of contagion Shares listed on AIM are subject to market sentiment and volatility LIQUIDITY As shareholdings are unlisted, liquidity will be dependent upon the ability of the manager to match buyers and sellers off market, investee company cash levels and company cash flows The AIM market provides visibility, increasing the chances of regular trading by a wider audience of investors AIM DISCRETIONARY ISA PORTFOLIO AIM shares became ISA eligible in August 2013, and being able to place BR qualifying investments within the nation’s most popular and accessible tax efficient wrapper is clearly very attractive, making the investment essentially income, capital gains and potentially IHT free. ISA capital loss offsets Capital losses within an ISA (which is a tax exempt vehicle) aren’t eligible to offset against other capital gains. Therefore, the use of ISAs for unquoted shares needs to be carefully considered with an investor’s appetite for risk. FEATURES This, along with the introduction of the additional permitted subscription (APS) legislation in 2015 has contributed to an increased level of interest in AIM ISAs. (APS allows a surviving spouse to inherit a one-off additional ISA allowance equivalent to the value of the deceased's ISA at the time of death.) Since this change, there have been increased inflows into AIM funds and BR services with an AIM focus now make up around 50% of BR investment structures. But nobody should be under any illusion that AIM shares are comparable with the traditional shares held in a stocks and shares ISA. Great care needs to be taken to ensure that clients understand the difference, especially when investing as part of an estate planning strategy; AIM is the junior market and listing there is not the same as listing on the main market, and does not confer the same status, although the higher levels of scrutiny and corporate governance that would normally be associated with a listing can apply.