The decision by the Financial Conduct Authority to leave enterprise investment schemes outside of the scope of the ban on promotion of unregulated investments to retail investors could treble investment into the sector over the next three years, according to one manager.
Brett Williams, managing partner at alternative investment firm Old Burlington Investments, said that advisers had been reluctant to put money into EIS due to the uncertainty over whether they would be included under the Ucis umbrella.
He hailed the move by the FCA to leave EIS outside the scope of the ban as bringing much needed “clarity” and said it would likely lead to a surge in adviser recommendations to invest in the tax incentivised product for wealthy clients.
Enterprise investment schemes were set up by the government to boost investment into smaller businesses. Investors in schemes get 30 per cent income tax relief as long as they remain invested for five years, but must bear the risks of being exposed to a portfolio of young, fragile companies.
Mr Williams said that last year the sector collectively represented investments of around £800m, but that the expected boost following the FCA move could see this grow to £2.5bn over the next three years.
He said: “Investors have been disappointed with the returns delivered by traditional asset classes in recent years and are looking at alternatives.
“EIS offers the potential of significant growth to portfolios and we believe that advisers will need to consider for a sizeable number of their clients. We expect that EIS will become a key part of retirement planning for the increasing number of people at or near the pension cap.
“The announcement puts the FCA on the same page as the Treasury which, in April 2012, revealed enhancements to EIS which brought the products further into the mainstream.
“The changes increased the amount of capital a qualifying business can raise in a year from £2m to £5m... [which] opened the EIS world to a much larger list of businesses, many of which are more established.”
Others reacted less positively to the news.
Simon Morris, regulatory partner at law firm CMS Cameron McKenna, said the ban was a step towards ‘nanny’ regulation.
He said: “There is little evidence that advisers were systemically selling unregulated schemes. The few instances of mis-selling and of scheme promoters failing tell us more about the quality of FSA’s supervision than about problems with these products.
“This step de-skills advisers, now all duly qualified after RDR, and diminishes the service they can offer to their clients.”
Martin Taylor, head of client relations at Rebus Investment Solutions, also derided the regulatory move but for the paradoxical reason that he said it is essentially “toothless”.
He said: “We’re non-plussed by this announcement, to be honest. This is another example of ‘regulation without teeth’ due to the fact that it’s fairly simple to side-step the ban.
“For example, investors need to merely sign a certification of high net worth and they will be eligible to invest. Moreover, many promoters will simply move their operations offshore.
“To add to this, the FCA is not introducing this ban until January 1st next year. If these schemes are so high risk that they need to be dealt with, why is the FCA waiting until next year?”
