EIS Industry Report 2019/20

42 43 8% 77% WHAT ARE YOUR PREFERRED SECTORS WHEN SELECTING EIS PRODUCTS FOR CLIENTS? We last asked this question to advisers at the end of 2017, for our 2018 Industry Report. In that survey, we didn’t include a Technology sector, but by last year it was clear that this area was a major player, with 50% of open EIS offers at that stage having a strong technology focus. This year’s adviser survey reflects that continued growth, with technology cited as a preferred sector for three-quarters of all respondents. There are two factors likely to be driving this: first, the types of EIS products on the market continue to be focused on the technology sector, which sits nicely in the current EIS risk profile; and second, these types of investee companies are more likely to fit into the ‘knowledge- intensive’ bracket and therefore are able to raise more money through EIS. The same goes for pharmaceuticals and biotechnology, which was cited by 48% of advisers. However, the second most popular sector was general enterprise, suggesting that many advisers are happy to let the investment managers make the decisions over which companies should be invested in. As our adviser roundtable shows, advisers will often choose an investment prospect based primarily on the individual company’smerits rather than which sector it is focused on. It is interesting to see that, despite all the uncertainty over film & media, a fifth of respondents still consider it to be one of their preferred sectors for EIS investment. General Enterprise Industry & Infrastructure Media & Entertainment Pharma & Biotech Sport & Leisure Food & Drink Technology 55% 50% 22% 48% 7% 10% 75% HAVE THE INCREASED LIMITS FOR KNOWLEDGE- INTENSIVE COMPANIES CHANGED HOW YOU APPROACH EIS INVESTMENTS? Once again, it seems that the adviser community is largely taking the EIS changes in its stride. The vast majority have not changed their approach in the wake of the changes being made around knowledge- intensive companies, while 15% said they were now more likely to recommend EIS products as a result. This should be encouraging for the EIS market, as the government continues to develop its knowledge- intensive fund, suggesting that not only is there appetite from potential investee companies, but there is significant demand to take advantage of such companies within the adviser community. The majority of advisers in our survey listed technology among their preferred sectors for EIS investment, suggesting that many advisers are already well-versed in a sector that is likely to benefit significantly from the focus on knowledge-intensive companies. MORE LIKELY TO RECOMMEND NO CHANGE LESS LIKELY TO RECOMMEND 15% Market Research / Adviser Survey Analysis ADVISER ROUNDTABLE VIEWS FROM THOSE AT THE SHARP END Moderator: Paul Jarvis, Intelligent Partnership Have you seen the shift to growth capital having an impact on the EIS market and if so, how? KW : We have not really seen much of a shift. A lot of the companies that we have always dealt with are working in a high risk area, so for us it’s the same as before. The main impact we have seen is on the timescales to exit: it has allowed funds to push out the time periods by another few years, especially in terms of medtech businesses. That has been one of the by-products. RM: Any significant change will inevitably have an impact, but the change in rules is understandable given the level of tax advantages on offer from this type of scheme. As ever, it is all about picking the right client for the right product and keeping up to date with any changes over time. The majority of our client base has an inheritance tax liability, so if you combine that with our younger clients who are high earners that may also have capital gains, it makes sense to consider EIS. So you need to look for the right client profile. NT: Ultimately, I believe that this has been a positive move for the EIS market in the long run. Clients need to be confident that their investments are being made in a manner that is sustainable and in the spirit of the prevailing legislation, and as a result, ensuring that EIS investments truly do have the level of risk that is commensurate with the significant tax breaks that they receive means that the EIS proposition is now a credible one that should stand the test of time. It has reduced the number of people we are advising down this route, but if the changes to growth capital hadn’t been implemented it is likely that the whole EIS concept would have been progressively undermined, meaning that the scheme could have been withdrawn in its entirety. ATTENDEES “The EIS proposition is now a credible one that should stand the test of time” — NICHOLAS TOUBKIN, STRABENS HALL KEVIN WILKS FINANCIAL RESOLUTIONS CHRIS CLARKE PARTNERS WEALTH MANAGEMENT NICHOLAS TOUBKIN STRABENS HALL RICHARD MEATS TUDOR FRANKLIN INDEPENDENT FINANCIAL ADVICE PAUL JARVIS INTELLIGENT PARTNERSHIP