Secret IFA: EIS, VCT growth a threat to adviser reputation

You know; a game of chess, or having a chat over coffee with a sales rep from an EIS or VCT provider. The last time I played proper chess was over twenty years ago, but recently I’ve been meeting a lot of EIS and VCT people. Getting a straight answer out of some of them is nigh impossible - though to be fair, they’re happy to get the coffees in.

Call me old fashioned, and even a bit of a prude, but I thought ‘enterprise’ investment and ‘venture’ capital meant more than simply securing tax relief for the greedy or the gullible. When I think of the Starship Enterprise, it promised to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before – not to structure mezzanine debt at the taxpayer’s expense.

I personally believe there should be an element of ‘derring-do’ with these investments. After all, the definition of venture capital is money made available for investment in innovative enterprises, and where there is a risk of loss as well as a potential for profit (why would you invest otherwise?). The taxpayer shouldn’t be footing the tax relief if there isn’t a high prospect of a capital loss, surely.

Of course, the EIS and VCT people never really admit as much, and when challenged directly, become evasive or state that they’re acting within the rules – well so was Jimmy Carr, but it didn’t help his popularity.

Our popularity isn’t so great either, and in the eyes of the public we’re part of a problem they call ‘greedy bankers’. So manufacturing and promoting products to exploit badly drafted rules instead of working within their spirit, is harmful in the long run – to us and to the taxpayer. OK, I’m off my soap box now - rant is over.

But as one rant is closes, another one opens, so let’s look at charging structures! What is it about financial product manufacturers and charging structures? Why does is always involve complexity? And the more complex the structure, the more they avoid talking about it.

Recently I had to ask one VCT provider eight times for details of their charges, and I still didn’t get an answer! A couple of days later they were emailed to me – well it saved a tree I suppose. The charges were mind boggling – not just the amount, but the sheer complexity of it all.

This was a VCT top-up offer, and each investor’s money would be spread over six different existing funds – each with their own unique charging structure. There were flat fees, performance fees, variable performance fees, high-water marks, proposed changes to existing charges, options to increase fees, and the list went on, and on. Meanwhile I turned off.

It would be nice for someone to boldly go where no-one has gone before, and come up with a charging structure that wasn’t both rapacious and complex. Ahh, I hear the response now – it’s illogical, Captain. Spock Off.