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more VCTs across a couple of the most
flexible platforms (not the old fund
supermarkets) the following season.
Now, most of these issues are for the
industry to work out. From advisers’
point of view, they simply want the
convenience of being able to access
VCTs in the same way as the majority
of other retail investment products.
However, there are two deeper issues
that advisers would be wise to bear in
mind as well.
Firstly, the issue of suitability. This was a
fear expressed by some providers (and
some advisers we spoke with). They see
platforms as a mass-market product
and VCTs as a niche market product
and therefore feel uncomfortable with
VCTs listing on platforms. Ultimately,
of course, suitability is something
that will sit with the adviser and not
the platform or provider - so it must
be hoped that if VCTs do become
commonplace on platforms it doesn’t
lead to complacency or misconceptions
about what these products are on the
part of some advisers.
There will also be a responsibility
on providers to market themselves
honestly as well. Of course, with a
new audience of IFAs (and potential
investors) to try and reach, some of
the providers may well be tempted to
position their product as close to mass
market as they dare.
This brings us onto the second issue: if
platform acceptance does potentially
open up a new cohort of advisers
to market to, the providers with the
biggest marketing budgets will be the
most successful. They will bring in more
customers, but one hopes that this is
not at the expense of the smaller VCTs
who have some of the most interesting
(and best performing) offers. Advisers
who are coming to VCTs for the first
time should keep this in mind when they
are being bombarded with marketing
messages in the near future.
A final consideration is something that
often comes up in relation to platforms:
there is a cost to the client, but is it the
adviser who really accrues the benefits
of convenience and a consolidated view?
There are obvious benefits to the client
and adviser at the investment stage – no
cheque, application form or additional
Anti Money Laundering checks. But
following that, is there more benefit to
the adviser and the platform in retaining
all the assets on platform and earning a
custody fee / AMC on the client’s overall
portfolio? For a client it’s an investment
that will be held for at least 5 years, so
if we do see VCTs on platforms there
may have to be some adjustments to the
pricing from both the VCT and platform
to balance out the cost to the client.
THE REGULATORY
CONTEXT FOR VCTS:
VCTs are regulated by a quartet of
organisations:
HMT –
Sets out the rules that govern
VCTs. The Treasury has a handful of
objectives when it comes to VCTs: to
ensure that the schemes continue to
support economic growth, provide
value for money for the UK Taxpayer
and comply with European State Aid
rules. These objectives can sometimes
be conflicting. We’re not sure if the
changes announced in the 2015
summer Budget, which ensure ongoing
compliance with the State Aid rules, are
optimal for ensuring that the scheme
supports economic growth. Read our
opinions on page 32 for more detail on
the dilemma HMT faces.
HMRC
– Ensures that VCTs are
compliant with the rules. HM Revenue
and Customs are responsible for
administering the tax reliefs and
ensuring the ongoing compliance of the
VCT funds - their biggest intervention to
date has been the temporary removal
of qualifying status from the Oxford
Technology VCT, detailed on page 29.
FCA
– Regulates the advice process.
Back in 2012/13, the Financial Conduct
Authority issued a policy paper on
Unregulated Collective Investment
Schemes (UCIS) and “Non-Mainstream
Pooled Investments” (NMPI). At the time
Every adviser and advisory firm will have their own process and format for suitability
reports - but points that are specific to VCTs are summarised below:
“From advisers’ point of view, they simply want the convenience of being able to access VCTs in
the same way as the majority of other retail investment products”
SUITABILITY REPORTS
No market for the
shares
Likely to trade at
a discount to the
NAV (true value)
5 years qualifying
for income tax
relief
Tax relief isn’t
excuse for high
risk nature
Reduce or eliminate
income tax liability of
up to 60,000
They have a
requirement for tax-
efficient investment
for capital growth
OBJECTIVES
PROFILE
WARNINGS
They have
surplus capital
They are aware
of the potential
to lose all of the
investment
They are aware
the reliefs could be
withdrawn or clawed
back