The "prohibitive" cost of professional indemnity insurance is preventing advisers from recommending venture capital trusts (VCTs) and other tax-efficient investments, according to Jack Rose, head of tax products at LightTower Partners.
Mr Rose said the most frequent reason advisers give for not moving clients into tax efficient investment products is the increased professional indemnity insurance premiums they must pay if they recommend these deals.
He said: "The products are higher risk, and many advisers at smaller firms may not be able to do the due diligence on the VCT, or on the companies. That leads to concern from the (professional indemnity) insurance providers and makes the cost (of recommending VCTs) prohibitive."
Richard Hoskins, co-founder at Kin Capital, another business involved in the marketing of tax efficient investments, said: "The challenge is 'tax efficiency' has become too closely associated with tax avoidance; there is a difference.
"Investors in aggressive tax partnership structures shouldn't be surprised to see themselves on the front pages of the tabloids. Enterprise investment schemes (EIS) and VCTs are very, very different and unlikely to cause a professional indemnity insurer a problem.
"Over a three-year period, the Financial Ombudsman Service received more complaints about advisers recommending contents insurance than VCT and EIS.
"PI insurers are happy to take risk, providing they can understand and price it. The problem is most insurers don't understand the risks. It is easier for them to say 'no'."
He added a hike in professional indemnity insurance premiums is more typically a problem for advisers wishing to recommend EIS products than VCTs.
Jamie Newell, of brokerage firm O3 Insurance, said it is "not necessarily" the case that insurers will charge more for professional indemnity insurance for EIS and VCT investments.
He said: "It will depend on the due diligence the adviser has undertaken on the product, provider fact find, client understanding and acknowledging the risks."
He said client suitability and the proposed percentage of client assets to be invested are also considerations.
Jason Hollands, managing director for communications and business development at Tilney, said obtaining professional indemnity insurance used to get rolled out as a reason why some advisers wouldn't use VCTs.
He said: "There may be something in it but I think the underlying issue is that these are specialist, complex products that are high risk because of the illiquid nature of the small, early stage businesses in which they invest.
"Many advisers will understandably feel uncomfortable about recommending investments where they do not have the research capability, especially given the continually evolving nature of the investment rules."