Venture Capital Trusts  

Kids for VCTs branded dangerous

Kids for VCTs branded dangerous

Key information documents (KIDs) have failed to fix the three main problems with the tax efficient investing industry, according to one firm trading in the sector.

Richard Hoskins, who founded tax-efficient fund raising company Kin Capital, said there was much to commend the section of the industry he works in.

But he identified three issues with the way some parts of the industry work – the expense of products in this space, a lack of transparency and the way performance is “fudged”.

He said he had high hopes that the European Union’s Kid requirements would have addressed these issues.

Under the EU’s Packaged Retail and Insurance-based Investment Products (Priips) regulation, since the start of this year providers now have to produce a stand-alone, standardised document for each investment spelling out costs.

But Mr Hoskins said he felt the rules failed to make the cost and performance of tax efficient investments like VCTs and EIS any clearer as there was no “commonality” with the way firms were expected to list these details.

He also said while there was a breakdown of costs, managers could have been made to be more transparent by being forced to list the whole suite of monitoring and arrangement fees charged to the underlying companies in which the fund invests in the key information documents.

Speaking at FTAdviser's Tax Efficient Investing event in Birmingham yesterday (24 January), Mr Hoskins warned it was key that advisers understood the charges attached to VCTs.

While it was to be expected that VCTs may have greater costs due to the research required before committing to investing in qualifying companies, Mr Hoskins said, he noted the most expensive one in the industry "is effectively creaming off 6.75 per cent".

Given that the investor is investing in the VCT on the basis of income tax relief, Mr Hoskins said it was wrong that some people were losing more in fees and charges than they are gaining in income tax relief and had no idea that this was the case.

He said: "Kids are positively dangerous. While you think investors are better informed because you get a nice piece of paper you are probably worse informed.

"It (the Kid) does help to an extent but there is no commonality to how it presents information. Don’t rely on Kids. Take them with a heavy pinch of salt.

"You need to say [to VCT/EIS managers] talk to me about all the investments you have made, including the bad ones. What I am looking for is the average investor experience."

Mr Hoskins made his remarks as there was a change of heart from the regulator on the type of information fund managers must provide investors.

The FCA was contacted for comment but failed to respond prior to this article being published.

Yesterday (24 January) the FCA announced it was changing the rules to allow for more flexibility.