49 / 92
49
there was a possibility that VCTs would
be caught by the new rules (PS13/3).
However, the regulator concluded that
VCTs and EIS, as well as exchange traded
products and offshore investment
companies, will not be caught up in a ban
on promotion to most retail investors,
unless they are structured as UCIS.
At the time the Association of Investment
Companies director general Ian
Sayers said:
“We very much appreciate
confirmation of the FCA’s policy
intention to exclude VCTs and offshore
investment companies from the marketing
restrictions. This is important for the
investment company sector and allows
ordinary retail investors to continue to
access the benefits of VCTs and offshore
investment companies. We look forward
to working with the FCA to make sure the
rules deliver this policy intention.”
FOS
– Assesses consumer complaints.
We know that there are examples of the
Financial Ombudsman Service refusing
to acknowledge the ‘preferential tax
status’ element of an investment when
adjudicating a complaint. Their focus
is on the suitability of the investment
itself and the tax reliefs may be seen
as secondary to that consideration.
Although this may have been a one-off,
once again the adage about tax tails and
investment dogs seems to apply.
PROMOTERS AND ADVISER
RESOURCES
There are a number of resources
available to advisers who want more
information on VCTs. The three major
sites are Tax Efficient Review, Tax Shelter
Report and MICAP. All three provide
individual investment reviews, allowing
advisers to access independent third
party due diligence on VCT offers.
MICAP also offers online functionality,
allowing users to filter, search and
compare open offers according to
their chosen criteria, using a lot of
granular detail often buried within the
prospectuses.
Morningstar and FE Analytics both
collect top-level performance data on
VCT performance that can be accessed
free of charge.
The Association of Investment
Companies has a lot of information on
VCTs available for advisers, including
face-to-face training and webinars, both
live and pre-recorded.
There are also some promoters
operating with advisers in the
VCT marketplace. The three most
established are RAM Capital, Portunus
Investments and LGBR Capital, with
Kin Capital being a new entrant in this
space. These firms will work with a small
portfolio of VCTs and do the leg work of
going out and engaging with advisers
on behalf of their VCTs. From the VCTs’
perspective, this saves them time and
effort spent on non-core activities and
from the adviser’s perspective, the
promoters offer product training, an
additional layer of due diligence and
a single point of contact for their VCT
business. Of course, VCTs who don’t
work with promoters do all of this work
themselves. The industry has made a lot
of effort to engage advisers over the last
few years by running seminars, webinars,
providing extensive due diligence and
education and developing knowledgeable
business development teams.
DUE DILIGENCE AND PANEL
CREATIONSTEPSFORADVISERS
We have set out on the next page a
proposed due diligence framework.
This is only one example and it’s not
comprehensive: it’s beyond the scope of
this report to go into granular detail on
due diligence, but we want to give readers
guidance on what due diligence might
involve. The amount of work involved
may seem daunting - but as we pointed
out above, independent review sites
such as MICAP, Tax Efficient Review and
Tax Shelter Report provide independent
third party reviews for advisers.
As we stated, the list on the next page
isn’t comprehensive. Advisers will need
to combine this type of assessment
with a review of the issues we noted in
the previous section: the objective, the
strategy, the manager’s performance
track record and the type of fundraise.
Additional areas that we’ve only hinted
at, but still need to be looked at closely,
would be any use of gearing, the policy
on discount management, the size,
scope and capacity of the manager to
adapt to changes in the rules, the level
of fees and performance payments
and how the manager’s incentives are
aligned with the investor’s.
The weighting given to each aspect or
individual issue in the overall analysis
will vary from adviser to adviser and
client to client, depending upon the
unique circumstances.
USING A PANEL
The issues are different for sole
traders and large nationals, and for
independent and restricted advisers,
but many advisory firms will use a
somewhat ad hoc VCT product selection
and due diligence process at the
moment, with no defined procedure or
selection criteria that they can point to.
They may not be certain that they are
looking at the whole-of-the market and
the process is often reactive, responding
to adviser requests or client needs as
and when they are identified, rather than
proactively selecting VCT investments.
Creating a panel of VCTs requires an
upfront investment of resources, but can
save time and effort later on and ensures
compliance with a centralised investment
proposition throughout a firm.
Building a process and implementing a
panel of approved products would ideally:
Save time and effort over the long
run (usually for key personnel)
Give more advisers confidence to
recommend VCTs (they are familiar with
the panel and can introduce it to the
right clients)
Provide more robust due diligence
on the managers and products
(their experience and capabilities,
financial strength and structure,
investment process and objectives and
performance track record)
Enable the firm to form a relationship
with the managers on panel
Ensure the firm is compliant with the
regulations
Ensure the firm is picking the most
suitable investments for their clients
The high level steps a firm would have
to go through to create a panel are
outlined on page 51.
“There are a number of resources available to advisers who want more information on VCTs”