Round Up Spring 2019

Despite a rising risk profile, Enterprise Investment Scheme (EIS) investments provide fantastic growth opportunities for investors, especially where they have maxed out their pension and ISA limits. The new restrictions on asset backing were a positive step from the adviser perspective, as EIS is now easier to advise on, and it’s contained within one risk bucket. In February 2019, there were 63 open EIS offers available in the market, so there’s certainly ample choice. But what questions should you be asking as an adviser? Five questions to ask w Enterprise Investment S

What are the fees? Fees across EIS offers are not homogenous, and this is a serious consideration to be aware of. Fees come in the form of annual management charges (AMC), initial fees, and performance fees to name just a few. Of course, this is an area that requires significant research and due diligence, so higher fees are to be expected. According to MICAP data, the average AMC for open EIS offers in February was 1.65%. The highest initial charge amounted to a significant 5%. High fees can erode away returns, especially over the long term. This is worth considering as EIS investments are realistically long term investments. A five to ten year time horizon should be expected, rather than the three year minimum holding period to be eligible for income tax relief. Fees can also be levied on investee companies. This means that the underlying companies are receiving less of the funding they require to grow their business towards a profitable exit.

Is the manager robust? With the realistic time horizon of an EIS investment being so long, advisers should question how robust the manager is. Will the manager be around in ten years to fulfil a long term venture capital investment? EIS managers, in general, are rather small financial institutions in comparison with some of the large fund managers. It’s also worth considering that EIS investments do not qualify for FSCS protection.

14