If clients do not have time to do the legwork themselves, they can invest as part of an investor network that monitors companies for its members. Where a network is involved, you are likely to find that each EIS company’s articles of association gives investors much greater power than is usual with quoted companies, both to access information and to exert influence.
Many investment firms create EIS funds, which channel investors’ money into, say, 10 to 15 EIS companies. This does add a layer of complexity and can make investments less transparent. These funds often follow a specialist strategy – such as renewable energy or technology – which tends to make them less diverse than a typical balanced UK equities portfolio. But these issues are not related to EIS – as in most investment fields, investors have the choice of direct or fund investing. In the advisory industry, there has been debate about whether an EIS is an unregulated collective investment scheme. To make sense of the debate, we need to differentiate between an EIS company and an EIS fund. An EIS company is not a Ucis. A portfolio service enabling clients to invest in EIS companies is not a Ucis. An EIS fund is not a Ucis if it complies with Paragraph two of the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001. However, the FSA consultation on non-mainstream pooled investments suggests that any EIS fund whose investors all get exposure to a single set of companies is likely to be treated as a Ucis.
For advisers, the emergence of true EIS portfolio services offers an attractive way forward. In a true portfolio service, there is no pooling and no management of property as a whole, so the Ucis issue goes away. Equally important, the adviser is not required to advise on the selection of individual companies, because the manager takes this responsibility. Clients get the ease and diversity of a fund without the loss of transparency and control normally associated with funds. Let us not forget that subscribing for shares in a UK company is possibly the simplest and best regulated form of equity investment in the world. EIS investing is nothing more than that. How sophisticated do you need to be to invest in UK company shares?
Benefits
The tax benefits of EIS investing are very generous. In fact, with a 10-year investment strategy it is possible for the tax saving to be more than 100 per cent of the initial investment. There is no obligation to buy an annuity and clients can withdraw 100 per cent of capital with no tax to pay after just three years.
