AIM Industry Report 2017/18

38 39 WHAT ARE YOUR TOP THREE CRITERIA WHEN SELECTING AIM FUNDS OR SHARES? WHAT ARE YOUR TOP THREE CONCERNS WHEN SELECTING AIM FUNDS OR SHARES? Overall, advisers picked performance history as their top consideration again this year, while the second most cited criterion has changed from provider reputation to transparency of underlying investments. This shows that advisers are becoming less biased towards the biggest providers in the market; instead, they are more interested in assessing the underlying investments of a portfolio. However, there are some differences between frequent and ′sometimes′ users’ behaviour. First, there is a higher proportion of frequent users who picked transparency of underlying investments than ′sometimes′ users. ′Sometimes′ users, on the other hand, are more likely to rely on performance history when choosing an AIM investment. In addition, ′sometimes′ users tend to prefer products from providers they know, while less than one in ten frequent users take previous experience with a provider into consideration. Instead, frequent users are keener on third party reviews. Clearly, investment risk is by far the most cited concern among all advisers surveyed (57%), and it’s consistent with both groups. The second most common concern is suitability. This chart shows that ′sometimes′ users can overestimate the complexity of some issues such as suitability, while, at the same time, perhaps underestimating the importance of some less obvious issues at the point of investment, for example exit risk. Concerns regarding suitability don’t seem to discomfort frequent users to the same extent. This suggests that, as they write more business in this area and become more aware of the regulatory requirements, advisers realise that these issues are not as complex as they thought. The same conclusion can also be applied to concerns around compliance and due diligence. The chart shows that advisers are generally not sector-biased when it comes to AIM investing – 82% and 49% of frequent and ′sometimes′ users respectively said they are sector agnostic. Those who choose General Enterprise also don’t have any preference towards a particular sector. This leaves the managers to select the best deals in different sectors acknowledging their skills in this regard. Given that all the AIM-based tax- advantaged products invest in the General Enterprise sector, most advisers should be able to find a product that meets their other criteria. But, for advisers who do have a sector preference, one way to achieve that exposure is to assess fund managers’ underlying portfolios, and then choose a fund that overweighs the preferred sector. When looking at the three groups (frequently, sometimes and never users) separately, we found an inverse relationship between the frequency of recommending AIM investments and the proportion of ‘no’ responses. For example, the ‘never’ group has the highest proportion of respondents who believe AIM is only suitable for HNW and sophisticated investors, while the figure is only 18% for the ‘frequently’ group. 82% of frequent users claim that AIM investments can be recommended to retail investors, but only 61% of ‘sometimes’ users and 31% of ‘never’ users agree. Therefore, we can conclude that the assumption that ‘AIM is only suitable for HNW clients’ is a misconception that pervades among advisers who are less familiar with the asset class. Veteran AIM investors acknowledge that AIM investments also add value to retail investors’ portfolios. PERFORMANCE HISTORY 0% 10% 20% 30% 40% 50% 60% 70% 80% PROVIDER REPUTATION OTHER TRANSPARENCY OF UNDERLYING INVESTMENTS INVESTMENT PROCESS / ON PLATFORM PREVIOUS EXPERIENCE WITH THE PROVIDER THIRD PARTY REVIEWS INVESTMENT RISK 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% LACK OF LIQUIDITY SECTOR REPUTATION LACK OF TRANSPARENCY EXIT RISK COMPLIANCE & DUE DILIGENCE SUITABILITY HMRC CHALLENGE NO TRACK RECORD OTHER YES NO FREQUENTLY SOMETIMES NEVER 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% ARE ONLY HIGH NET WORTH AND SOPHISTICATED INVESTORS SUITABLE FOR AIM INVESTMENTS? 51% of the survey respondents said AIM investments are suitable for all (not just HNW and sophisticated investors) – up by 6% from 45% last year. The proportion of negative responses also reduced from 45% to 40% this year. YES NO NO RESPONSE ALL RESPONSES FREQUENT USERS SOMETIMES USERS 51% 40% 9% This may suggest that those with more experience of recommending AIM have greater confidence that encourages them to cast the net wider to identify the best opportunities. “Certain stocks on AIM can qualify for Business Relief for IHT after being held for 2 years, and a portfolio of such stocks can contribute to reducing the investor ′ s Inheritance Tax liability on death.” — SHARON PRIEST, BLACKFINCH INVESTMENT MANAGEMENT “AIM plays a vital role in the funding environment for small and medium size enterprises as they develop their business.” — ANDREW MARTIN SMITH, GUINNESS ASSET MANAGEMENT TOP THREE CRITERIA WHEN SELECTING AIM FUNDS OR SHARES BREAKDOWN OF ADVISERS’ VIEWS: Are only high net worth and sophisticated investors suitable for AIM investments? ALL RESPONSES FREQUENT USERS SOMETIME USERS WHAT ARE YOUR PREFERRED SECTORS FOR AIM FUNDS OR SHARES? FINANCIAL SERVICES 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% FOOD & DRINK GENERAL ENTERPRISE INDUSTRY & INFRASTRUCTURE MEDIA & ENTERTAINMENT SECTOR AGNOSTIC DON’T RECOMMEND ALL RESPONSES FREQUENT USERS SOMETIMES USERS We can also see that frequent users are generally not too concerned with suitability, whilst it was selected by 57% of ′sometimes′ users. Interestingly, although the previous question shows that two- thirds of ′sometimes′ users rely on performance history when selecting AIM investments, only 8% of them picked no track record as a concern.