EIS 2018 report (web)

42 43 ADVISER SURVEY OPINIONS AND INSIGHTS Our annual Adviser Survey gathers the thoughts and opinions of advisers, and this year we had a record number of 190 responses. The engagement of advisers helps us to identify emerging trends and issues in EIS and to understand the considerations that are affecting those who are actively involved with giving advice and writing business. This kind of research is also a useful tool, allowing industry participants to review how their peers perceive the EIS market, and this year we have added a new element to the analysis; in addition to reporting the overall response for each question, we will also show readers how the level of engagement with the EIS market can affect an adviser’s view of it. This is based on the adviser’s classifying themselves as someone who uses EIS frequently, sometimes or never. Therefore, for each question we will provide three sets of results: 1. All Responses – includes everyone who responded to the survey. 2. Frequently – only includes responses we had from those who quoted that they recommend EIS investments frequently. 3. Sometimes – includes responses we had from those who said that they only recommend EIS investments some of the time. Readers should take into account that these answers were collated before the Autumn 2017 budget. DO YOU RECOMMEND EIS? Last year’s EIS survey showed that 88% of respondents recommended EIS to their clients. This year, that figure dropped slightly to 83%. This may be connected to a perceived increase in EIS risk profile, following the 2015 rule changes, but also reflects strong ongoing use of the benefits EIS offers. Nevertheless, the proportion of advisers who think that EIS is not just suitable for high net worth individuals and sophisticated investors has dropped by only 1% from 40% last year to 39% this year. This suggests that concerns due to the changing risk profile of EIS have been limited. It also raises questions about how the Autumn 2017 budget, with its much greater focus on removing risk mitigators might more significantly impact these answers. ARE ONLY HIGH NET WORTH AND SOPHISTICATED INVESTORS SUITABLE FOR EIS INVESTMENTS? When breaking down the opinions, we can see an inverse relationship between the frequency of recommending EIS investments and the proportion of ‘no’ responses. For example, the ‘never’ group has the highest proportion of respondents who believe EIS is only suitable for HNW and sophisticated investors, while the figure is only 49% for the ‘frequent’ group. 49% of frequent users claim that EIS investments can be recommended to retail investors, but only 40% of ‘sometimes’ users and 12% of ‘never’ users agree. So, advisers who are less familiar with the asset class are more certain that EIS is not for retail investors, while a larger proportion of veteran EIS investors acknowledge that EIS investments also add value to retail investors’ portfolios. This may signal that with EIS experience comes a much higher degree of confidence in the ability of retail investors to understand both the risks and the potentially positive outcomes. FREQUENTLY NEVER SOMETIMES NO RESPONSE WHAT ARE YOUR TOP THREE REASONS FOR RECOMMENDING EIS? WHAT ARE YOUR TOP THREE CRITERIA WHEN SELECTING EIS? Tax planning (non IHT) remains unchanged as the top reason for advisers to recommend EIS to their clients. The overall percentage, of 78% is the same as last year’s figure, but when looking at the breakdown between ‘sometimes’ and ‘frequent’ users of EIS, it appears that more of the frequent users acknowledge the usefulness of EIS as more important in terms of CGT, and Income Tax relief rather than IHT mitigation via EIS qualifying BR offerings. In fact, ‘Frequent’ users now list Growth as their second top three reason for recommending EIS (although IHT planning, driven by ‘sometimes’ users, is the overall second reason with 55% vs. 63% last year). This shows an alignment between those advisers who are more experienced in the EIS market and the government. If we link growth to risk, this is a very encouraging sign for EIS after the implementation of the new risk to capital conditions, and suggests that those who are more seasoned in the use of EIS better understand its value as a generator of Growth. In addition, since the overall percentage that chose Growth last year was just 42%, there is reason to be optimistic that those who are less well-versed in EIS investments are also noting this. Last year’s top 3 considerations were, Provider Reputation (65%), Transparency of Underlying Assets (64%) and Previous Experience with the Provider (43%). In last year’s report we noted that these, plus Performance History always make up the top 4, but this year Third Party Reviews has overtaken Previous Experience with Provider. Perhaps then advisers are becoming more comfortable with working with providers that are new to them, possibly because some of the providers they may previously have worked with have had to pivot as a result of the 2015 changes. The growing value of third party reviews may be a reflection of the increasing conditions placed on EIS qualification. “Sensibly valued deals and deployment capability of providers will be paramount considerations for advisers going forward.” — IAN BATTERSBY, SENECA 33% 50% 15% 2% YES NO RESPONSE NO 39% 58% 3% DIVERSIFICATION/ RISK MANGEMENT TAX PLANNING (NON IHT) IHT PLANNING POSITIVE SOCIAL/ ECONOMIC IMPACT EXPOSURE TO A SPECIFIC SECTOR GROWTH INCOME OTHER 100% 120% 80% 60% 40% 20% 0% ALL RESPONSES SOMETIMES FREQUENTLY PERFORMANCE HISTORY PROVIDER REPUTATION TRANSPARENCY UNDERLYING INVESTMENTS INVESTMENT PROCESS / ON PLATFORM PREVIOUS EXPERIENCE WITH PROVIDER THIRD PARTY REVIEWS OTHER 70% 60% 80% 90% 50% 40% 30% 20% 10% 0% ALL RESPONSES SOMETIMES FREQUENTLY FREQUENTLY SOMETIMES NEVER 50% 60% 70% 80% 90% 40% 30% 20% 10% 0% YES NO RESPONSE NO ARE ONLY HIGH NET WORTH AND SOPHISTICATED INVESTORS SUITABLE FOR EIS INVESTMENTS?