EIS Industry Report 2019/20

40 41 DO YOU FEEL YOU HAVE THE APPROPRIATE KNOWLEDGE AND TOOLS TO ADVISE ON EIS INVESTMENTS? The vast majority of advisers are confident in their ability to advise on EIS products. However, while the proportion who replied yes has increased by six percentage points since last year, the proportion of those who said no also increased - from 2% to 10%. This may be in part a reflection of some of the issues that we have seen over the past year surrounding HMRC’s advance assurance and continued uncertainty over where the department is drawing the line for EIS qualifying investments, particularly in sectors such as film and media. WHAT AGE RANGE DO YOU BELIEVE EIS IS NOW MOST SUITABLE FOR? The older demographic, and particularly the baby-boomer generation, continue to be the focus of the majority of advisers’ attention when it comes to EIS. Given that this age group holds the most wealth, this is no surprise and is aligned with our previous surveys in this area. However, it is worth noting that 28% of respondents now believe EIS is most suitable for the 45-55 age range, up from 20% a year ago. This may be down to the increased focus on risk, with younger clients potentially more willing to withstand the higher levels of risk involved in EIS than older clients, who may be more concerned with wealth preservation rather than growth strategies. YES SOMEWHAT NO 57% 33% 10% 35-45 45-55 55-65 65-75 45% 29% 3% 23% Market Research / Adviser Survey Analysis DO YOU FEEL THERE IS ENOUGH CHOICE IN THE MARKET IN TERMS OF EIS OFFERS? NOT ENOUGH CHOICE COULD BE MORE CHOICE NOT SURE TOO MUCH CHOICE ENOUGH CHOICE 8% 36% 47% 7% 2% With 63 open offers in the market as at the end of August 2019, almost half of our respondents think there is enough choice now available. That is nine more open offers compared to 2018 and this increased choice appears to be welcomed by advisers. However, 36% suggest that there could be more choice and when added to the 8% who think there is not enough choice, it suggests that there is still plenty of room for new entrants into this market. Diversification is a watchword for all investors, but the higher risk associated with EIS investments means having a diversified portfolio of investments is even more important. As a result, it is perhaps no surprise that many advisers would like to see even more choice available to them, in order to help ensure their clients have a portfolio that is invested across a wide range of companies, across different sectors and at different stages of their growth and development. WHAT ARE YOUR TOP THREE REASONS FOR RECOMMENDING EIS? Once again, tax planning proved to be the top choice of advisers when considering their main reasons for recommending EIS. The top three reasons have not changed since last year, with non-IHT tax planning accounting for 87% - similar to the 85% figure for this choice last year. However, while the third and fourth choices - diversification and growth - both hovered just above the 50% mark for the second year running, there was a five percentage point increase in those placing IHT planning in their top three reasons. This may be slightly surprising given that this usually involves capital preservation strategies. We might have expected growth to come higher in the advisers’ thinking, given the focus on risk that is now required under EIS. In fact, it has changed little since last year’s survey, when it garnered 50% of the vote, and has increased only nine percentage points from the 2016/17 edition. Taking these two results together, it may be that while many advisers already saw the importance of growth within EIS before the rule changes, they have not significantly changed how they promote EIS products to their clients. Alternatively, it may be that a growing number of advisers are using EIS with their younger clients. These clients will still be in the wealth accumulation phase and are therefore looking to combine tax efficient growth potential with starting the business relief qualification clock. WHAT ARE YOUR TOP THREE CONCERNS WHEN SELECTING EIS? It is no surprise to see investment risk again topping the concerns for advisers - although notably 71% of this year’s respondents cited it in their top three, up from 61% last year. The second most popular choice here was lack of liquidity - up to second in the list with 55% citing it. Last year it was third, with just 38% of respondents including it in their top three concerns. A significant factor in the rise in prominence of liquidity may be the suspension of trading and subsequent winding up of the Woodford Equity Income fund. While this is not an EIS fund, the publicity surrounding its suspension has raised a number of issues about the liquidity of investments more generally, and thus it is likely to be at the forefront of advisers’ minds whenever considering investments on behalf of their clients. Compliance and due diligence has fallen in importance, with 27% of this year’s respondents citing it in their top three concerns, compared with 36% in last year’s survey. This may suggest that the rule changes have now bedded in to such an extent that advisers are more assured of the processes surrounding compliance and due diligence for EIS products. Conversely, lack of transparency has risen among advisers’ concerns, with 30% of respondents referencing it in their top three, compared with 23% last year. Issues around transparency were also mentioned in the adviser roundtable, particularly in relation to the ongoing difficulty of like-for-like fee comparisons. Invesment risk 72% 55% Lack of liquidity 53% Exit risk 30% Lack of transparency 26% Compliance and due diligence 25% No track record 18% Suitability 15% HMRC challenge 7% Other 2% Sector reputation Tax Planning (non IHT) 87% 73% 55% 52% 7% 3% IHT Planning Diversification / Risk Management Growth Positive Social / Economic Impact Other Market Research / Adviser Survey Analysis