Advisers are ill-equipped to deal with investors’ increasing appetite for the enterprise investment scheme, according to CoInvestor.
The investment platform has called for more support for advisers in the wake of increasing demand for the tax-efficient schemes.
Charles Owen, who heads the CoInvestor platform, said advisers lack the resources and expertise needed to help their clients make the right decisions.
The warning comes as advisers prepare to help their clients make the best use of tax allowances and reliefs in the run-up to the end of the 2015 to 2016 tax year in April.
Mr Owen said: “Advising clients on making unlisted investments is beyond the scope of many advisers’ regulatory permissions and the industry is going to need significant support if it is going to be able to satisfy the rising demand from clients for the EIS and other similar opportunities.”
“Third party research and expertise will have an important role to play in helping advisers and wealth managers to work with their clients, but we will also need to assist advisers as they develop due diligence processes of their own.”
Financial advisers and wealth managers, which only contribute to a tiny proportion of EIS business, may struggle to help clients achieve their growth investment ambitions, Mr Owen warned.
He advised financial planners to work closely with partners who could offer support, particularly where investors are keen to put money directly into EIS-qualifying companies rather than a fund.
“Growth investments offer exciting potential but advisers will need help finding the right structures for their clients.”
EIS investment in the 2013 to 2014 tax year, which is the last year for which data is available, increased by more than 40 per cent, according to HM Revenue & Customs.
Widespread anticipation that pension tax reliefs will be further reduced by the chancellor is boosting interest in other tax-efficient financial planning opportunities, Mr Owen added.
There is also growing awareness of the EIS’s value for inheritance tax planning.
Jason Hollands, managing director of business development at Tilney Bestinvest, said: “I think there is a some truth in this, as most advisers are small firms and these are niche schemes.
“The schemes rightly require extra thorough due diligence because of the high-risk nature of the underlying assets, the paramount importance of suitability from a regulatory perspective, and periodic changes to the criteria around what constitutes a qualifying investment.
“Advisers need to navigate cocktail of tax reliefs in considering which clients should or shouldn’t consider EIS as part of a financial plan,” he said.
“But investors demand is likely to grow, given moves to curtail pensions for wealthier investors.”
katherine.denham@ft.com
