EIS Industry Report 2018/19

60 61 The prospectuses are not detailed enough to give me that underlying conviction What do you look for in an EIS offer? RM: I like offers with a sustainability angle. Most of our clients are doctors and dentists. A significant portion would like to invest ethically, but that is not to say they would exclusively invest in that area. JM: I’d like to understand managers’ pricing better. It’s still opaque. I’d also like to understand their exit strategy better. Some managers are not making an easy transition to adjust to the current market. I don’t think they have access to the research and depth of thinking required for the projects they’re putting forward. I’m looking for providers that have that expertise. If they’re linked with a VC, then maybe they can offer greater liquidity to clients who are looking very short term. We’re looking to do more single company EIS investments, and that’s currently missing in the market. They’re useful for non-doms coming into the country, who still have the constraints of how quickly you have to invest. Single company investments don’t necessarily have a higher risk profile than a portfolio. If you know the people, and get board representation, you can watch your money more closely. MH: A working relationship with the provider, and whether they have the expertise needed. It’s less about one provider, but more the diversification across multiple offers. We adopt a multiple portfolio approach to EIS. We don’t do single company EISs, because they’re deemed to be unregulated investment schemes. FHB: We look for a justification for the projected return. All too often the projected exit price appears to be a best guess, or at worst, a salesman’s price. You have to be able to recognise the rainclouds with EIS investment. We look for a comprehensive and detailed analysis of the investments, and how they might perform in different circumstances. Are you recommending EIS investments for the investment case, as opposed to the tax benefits? RM: Both, but from the investment angle first. The tax relief mitigates the risk, but it doesn’t mitigate a poor investment. FHB: It has to rest entirely on the investment case. However, I only recommend EIS to clients who would benefit from both income tax and CGT deferral relief - thereby mitigating a loss in the event of a flop. EIS cannot be justified on the 30% income tax relief alone. I rarely use EIS as an IHT tool, as there are lower risk alternatives, such as Business Relief. MH: They’re probably equal in importance. Now the risk is higher, you have to have the tax benefits to compensate. The tax benefits do help to de-risk EIS in the event of failure. What is your biggest concern when making an EIS investment? MH: The most important thing is that the client understands what they’re doing. If one or more of the underlying companies fail, the investor has to be prepared. RM: We were comforted by the risk-to-capital condition. Those EISs that were purely working the tax benefits, we would have had a problem asking a client to accept that level of risk, and then for the product to fail on a change in the rules. “Now the risk is higher, you have to have the tax benefits to compensate. The tax benefits do help to de-risk EIS in the event of failure.” — MARTIN HILL, TWP WEALTH “There are a lack of EIS opportunities out there, compared to just a few years ago. Considering Brexit, I think HMRC has put too hard a squeeze on the industry.” — SIR FREDERICK HERVEY-BATHURST, CLARENDON FINANCIAL PLANNING What would you like to see in the future from the EIS market? RM: It’s a shame that things like solar have been taken out of EIS. There’s still a long way to go in that area. MH: It’s less about the investments, and more about the management of the administration. They’re very messy to deal with, and the manual process involved is very time-consuming. FHB: The market needs to put pressure on HMRC to permit more substantial investments, enabling managers to create a greater potential profit, and thereby justify more time and money on initial research for investment opportunities. There are a lack of EIS opportunities out there, compared to just a few years ago. Considering Brexit, I think HMRC has put too hard a squeeze on the industry. Moderator: John Schaffer, Intelligent Partnership Market Research / Adviser Roundtable Market Research / Adviser Roundtable