How EIS can help suitable clients and advice businesses
Toby Band is a financial adviser and Managing Director at First Sentinel Wealth, a growing firm offering bespoke wealth management. Octopus Investments sat down with him to discuss the role of venture capital in client planning.
Tax-efficient investments form an important part of Toby’s client planning. That includes venture capital investments that qualify under the Enterprise Investment Scheme (EIS).
Why?
“With venture capital, it’s the growth opportunity that clients are interested in” Toby explains in a new interview.
“With Consumer Duty, you need to evidence that you're bringing value. It's important to consider these investments. Our role is to consider the financial products available in the UK for an individual, make an assessment and, if it's suitable, recommend it.”
“Its important to consider tax-efficient investments, like EIS, even if you discount them for a client.”
“I have clients who work in private companies that have grown significantly. They want more exposure to these types of companies, but they want to do it through their adviser and with a diversified portfolio.”
EIS investments via a professional investment manager offers his clients a way forward
“One client spent his whole career at the same firm. He worked his way up through the ranks and sat on the board. He’d built up a significant shareholding and on retirement he wanted to crystallise that.”
“It became apparent he could set aside enough for retirement and allocate to higher risk investments. Having held his company's shares over 35 years, he saw the value of investing in early-stage companies.”
“We allocated a portion of the wealth to EIS. He received income tax relief, and he now has a portfolio to go alongside his retirement planning, which keeps him a bit more excited about the prospects for growth.”
“Another client has spent their career working in startups,” continues Toby. “They are due to receive a large buyout for their holding in a company. It will bring a large tax liability with it. It will also mean he’ll no longer have any private equity holdings, which has been a big part of his life.
“We're looking at recommending EIS to keep exposure to the tech sector which he's familiar with, and also to help him reduce a large tax bill.”
“There’s also a capital gain to pay on the stock, and with EIS the client has the option to defer the capital gain and pay the tax when his new investment crystallises.”
To help support good outcomes with tax-efficient investments, you can use our client planning scenarios. They’ll help you see how these investments can support a variety of clients across your entire client bank.
Understanding the risks
Advisers must make sure any recommendation of these products is relevant and suitable for the client in question.
The value of an EIS investment and any income from it, can fall as well as rise. Investors may not get back the full amount they invest.
Tax treatment depends on individual circumstances and may change in the future.
Tax relief depends on portfolio companies maintaining their qualifying status. EIS shares are by their nature high risk, their share price may be volatile and they may be hard to sell.
Visit octopusinvestments.com/client-planning to explore the scenarios and watch the full interview with Toby Band.
Tax-efficient investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client's financial situation, objectives and needs. This communication does not constitute advice on investments, legal matters, taxation, or any other matters. Personal opinions may change and should not be seen as advice or recommendation.
