Last week we had over 50 delegates attend our EIS masterclass, hosted at the DWF office in London. We had speakers from the Entrepreneurs Network, Rockpool, The Timebank, Time Investments, Calculus Capital, EY, Oxford Capital and MICAP. I’ve summarised below some key ideas presented on the day:
- Some MPs are not aware of the existence of EIS, although it has financed 22,930 companies with over £12.3 billion raised since it was launched in 1993-94. Politicians should not ignore the importance of SMEs as they comprise 95% of UK businesses. On the positive side, if even more politicians can be made aware of the importance of the EIS it could go on to be even more successful.
- EIS investment fits various investment objectives and is simpler than you may think. It is also flexible and transparent. When it comes to estate planning, investors benefit from the IHT exemption in just 2 years. Given the £40,000 annual pension cap, many pension savers may now need alternative tax efficient investment options. Finally, investors who are seeking high returns will also find EIS useful due to its tax reliefs which enhances gains and offsets losses.
- Advisers need to ensure that a personal recommendation or a decision to invest is suitable for their client. Suitability reports should include client circumstances, and be based around the client’s investment objectives.
- Product due diligence and manager due diligence are equally important. For example, the provider’s financial strength, sector expertise, track record and the experience of the team should all be assessed. In terms of a particular product, fees, underlying investments, exit strategy and the investment objective should be studied carefully.
- Investing in EIS can help to diversify a portfolio. EIS is unquoted and its returns are not correlated with mainstream markets. EIS also gives investors access to specific sectors. Diversifying expected investment duration within an EIS portfolio can also help with managing liquidity. However, research shows that over-diversification within the EIS portion of your portfolio may result in reduced potential returns without a reduction in risk, as well as incurring more transaction fees.
- Study fees carefully. Typically, managers charge an initial fee, an annual management charge (AMC) and a performance fee. Managers charge an initial fee to pay for sourcing and selecting deals. The AMC compensates managers’ ongoing involvement with investee companies. The performance fee is charged after a hurdle is breached, and it can be viewed as a way to incentivise managers. Other fees that are less prominent that advisers should watch out for include admin fees, deal fees and fees applied to investee companies.
- We expect EIS will continue to grow in the future. The scheme is getting more popular among investors, awareness is growing and based on the research we heard from Philip Salter of The Entrepreneurs Network, there is still a lot of deal flow out there.
Sites like https://educationspeaks.org/masterclass-review/ will have reviews, highlights video and interviews with our speakers to share with you soon.