BR report 2018

55 54 “I’d like to see an increased awareness amongst advisers of how BR can be used. It’s still a small part of IHT planning, and seems to be one of the last options advisers turn to.” — BELINDA THOMAS, TRIPLE POINT WHAT CHANGES WOULD YOU LIKE TO SEE IN THE BR MARKET? DO YOU HAVE ANY CONCERNS FOR THE FUTURE AND HOW DO YOU SEE THINGS DEVELOPING OVER THE NEXT 12 MONTHS? DB: People really need to look at the returns on investments. Is it an investment that stands up in its own right? If IHT completely disappeared, would you still say it was a legitimate investment? Are you only investing for the tax relief? We’re also passionate about information and education around BR planning with vulnerable clients. It can be tricky for advisers to know how to effectively deal with those clients. They often have the biggest need, but can also pose the biggest risk potentially to advisers and their businesses. More education is needed, and education should come from providers to help in that space. SH: One of the things we are very keen on seeing is greater transparency in the market in terms of charges, costs and the reporting of performance. Lots of companies have made progress but many people would argue it is still quite opaque in certain areas. SM: We are very positive about the future of the BR market – it is growing and developing quickly. There are more providers coming into the market and that can only be a good thing as it will mean more choice for investors. The increased competition will lead to improvements and that will also bring benefits to investors. We hope that the increased competition will force providers to be more transparent in terms of the exact nature of the underlying investments with a particular emphasis on the liquidity of those investments. SJ: In the context of MiFID II, we’d be keen to see greater transparency in fees and cost structures, particularly on unquoted BR services. I have sympathies with advisers who are trying to carry out cost comparisons, as the fees are levied and disclosed using completely different methods across the market. What we’re seeing is that advisers are increasingly embracing diversification within the BR market. The breadth of the proposition in the market is very positive and enables advisers to mix and match, perhaps selecting defensive propositions for certain clients with asset focused offerings, and maybe select higher growth, higher risk strategies for the more adventurous client. That trend of diversification we believe will continue to grow in 2018/19 onwards, with further product and strategy development in the market. BT: I’d like to see an increased awareness amongst advisers of how BR can be used. It’s still a small part of IHT planning, and seems to be one of the last options advisers turn to. There seems to be a slight nervousness over using BR because its investing in shares. Once we get the opportunity to talk to advisers and explain how we’re doing those investments, and they become more comfortable with it. There’s plenty of choice in the BR market with a variety of investment strategies which is a good thing for advisers, but can also be confusing. We would welcome an enhanced level of transparency about the underlying trades so advisers can diversify their client’s holdings where appropriate and more details about the costs involved so comparisons can more easily be made. LC: We’re seeing quite a few new entrants, which is a good thing. It’s something you can expect when a market starts to become more mature, people spot opportunities and develop them. However, some funds are starting to get a bit opaque in the way that charges are being implemented – it’s something that as an industry we should endeavour to address and ensure that clear information is provided to investors. One of the things we’re looking to do is improve engagement with the Treasury on these matters as well, to make sure we’re all aiming for the right outcome for investors. BR funds are investing into small companies that are paying taxes and boosting the economy. It doesn’t take much to demonstrate that there’s a net revenue take for HMRC. “What we’re seeing is that advisers are increasingly embracing diversification within the BR market. The breadth of the proposition in the market is very positive and enables advisers to mix and match, perhaps selecting defensive propositions for certain clients with asset focused offerings, and maybe select higher growth, higher risk strategies for the more adventurous client.” — SAM JERMY, TIME INVESTMENTS SECTION CONCLUSIONS 1. BR IS GROWING IN POPULARITY The responses to our adviser survey indicate that BR is growing in popularity. BR is predominantly being used with elderly clients, but it is also interesting to note that younger clients are using BR as an estate planning mechanism. Transparency of underlying assets is still the top priority for advisers recommending BR products to their clients, which is a key point that investment providers should take note of. 2. HOWEVER, BR IS NOT ADVISERS’ PRIMARY ESTATE PLANNING SOLUTION Our adviser roundtable revealed that BR tends not to be the first port of call as an estate planning solution, with trusts and gifts being a more popular approach among advisers. Where advisers in our roundtable particularly favoured BR was in its liquidity benefits – this ADVISED VS. NON- ADVISED BUSINESS All providers interviewed for this year’s report deemed BR to be a sophisticated product. The majority told Intelligent Partnership that they only allowed people to invest in BR products via an adviser. Dominique Butters, Blackfinch, said: ”We want to support financial advisers, so we don’t take business direct. At the end of the day we’re tax planning, so it really should go through a financial adviser.” Of the providers that do accept direct business, the numbers tend to be diminutive. Some providers even incentivise investors to go through an adviser channel by offering lower fees. Jessica Franks, Octopus Investments, said: “Advised investors make up about 95% of investors in our BR qualifying portfolios. The split is between our Octopus Inheritance Tax Service, where we have about 98% advised investors, and our AIM portfolio where we have around 95% advised investors. Moving forward, we’re not accepting new investments to our Octopus Inheritance Tax Service from non-advised clients. “Part of the reason we will continue to offer our AIM service to direct investors is because we acknowledge there might be investors who consider themselves to be an experienced investor in this sector, that don’t feel they would benefit from financial advice. “But our ethos is that we want all of our investors to take financial advice to make sure they understand the investment, that was especially pertinent for older clients that need access to capital for later life care. Advisers in our roundtable were also feeling little impact from the introduction of the RNRB – citing clients that were significantly over the new threshold, and thus still liable for a large IHT bill. Advisers also wanted more clarity on the risk profile of different BR products, rather than merely banding everything into a high risk category. 3. INVESTMENT PROVIDERS HAVE A POSITIVE OUTLOOK In our Industry Roundtable, BR providers were keen to advocate the importance of BR qualifying AIM investments, whilst also illustrating that BR was encouraging AIM investors to hold onto their investments during turbulent market conditions. Providers also addressed the OTS’ review of IHT and how simplification could be advantageous for the estate planning industry. There was agreement that rules changes to BR would not be beneficial, as BR is one of the more transparent elements of IHT legislation. There was also the argument that punitive rules changes could have a negative impact on fledgling UK businesses which are gaining investment through BR. The investment case of the underlying BR investments was also discussed, with it being touted that the investments should stand up in their own right – regardless of the tax relief on offer. it meets their objectives and that they have the best plans in place for their personal circumstances and wishes for their estate. “We therefore strongly incentivise investors to seek financial advice. For our AIM Inheritance Tax Service, there’s an extra 3% initial fee for investing directly, and an extra 0.5% annual management charge.” “It is important that advisers and investors carry out their due diligence on the underlying services, looking closely at important aspects such as liquidity, use of borrowing and gearing, risk taken to achieve returns, and investment diversification.” — NIGEL ASHFIELD, MANAGING DIRECTOR, TIME INVESTMENTS