The Treasury’s 32-page Consultation on Social Investment Tax Relief, which was published in July and which has now closed to submissions, suggested ways to encourage the British public to get behind social enterprises through investment.
However, Mark Hoskin, partner for London-based Holden & Partners, said he had been engaging with the Treasury over the proposals and was concerned that its current form makes it unappealing, especially for advisers.
Mr Hoskin said: “While the social impact investment tax relief may be good PR for government and advisers should be aware of its existence, the likelihood of any product reaching the adviser community is very small because as it stands by virtue of European regulation the cap on any fund raise is 200,000 Euros, which is totally impractical for both social ventures and for IFAs to consider”.
He called this “small fry” when considering how much money enterprise investment scheme-backed or venture capital-backed companies can raise.
Mr Hoskin said: “In terms of the social impact bond, each company should be able to raise about £5m a year, as EIS products can do.
“Furthermore, the rules under which these might be set up will preclude people from going direct and force them to go to advisers that will have to conduct thorough due diligence.”
For the proper distribution of any new product, he said the FCA interpretation of the new scheme was critical and could stop from outset financial advisers looking at it, because the extra benefit to their clients is not deemed sufficient for the compliance risk they were taking on.
Therefore, Mr Hoskin said: “A key point to be made to the FCA would be that the motivation behind investors would not be totally financial. These types of investments lie between charity and investment.”
He suggested to the Treasury that a cap could be placed on contributions of, say, £2000, under which the consumer risk might be deemed low and the FCA would allow the product to be marketed to retail investors without the need for specific advice.
A spokesman for the FCA said: “The FCA does not regulate charitable donations or reward based investment. For the investments we do regulate, our normal suitability rules apply. This means that we expect firms to understand their customer’s needs and risk appetite, and make a recommendation that is right for them. Such a recommendation will need to take into account any tax relief and how that benefits the client.”