In February, Syndicate room published the report ‘Tax-efficient investing in a digital world’ that discussed UK investor’s attitudes. This was the latest in a series of reports addressing the issue on investor’s attitude. The report shows that every year, online platforms are gaining popularity and investors of all ages are ready to diversify into early-stage enterprises to reap the most out of Enterprise Investment Scheme (EIS) tax reliefs that the government is offering.
Statistics show that between 2011 and 2016, early stage equities grew by a compound annual rate of 33% while at the same time the London Stock Exchange for the main market companies increased by only 5%. Investors are thereby ready to invest in early stage business bringing back EIS investments into the Spotlight.
The UK brags of a unique start-up stage investment culture. Young investors are looking for alternatives, and the experienced investors are seeking for ways of diversifying their returns. In this way, there is a growing interest in funding private firms. We are experiencing much change in the financial services industry because of technology.
Early-stage equities form a compact asset class in today's low-yield environment, and EIS provides a platform that benefits those who engage in it. The interesting thing is the way investors access the equities without the limit of borders. According to the report, which the Enterprise Investment Association supports, the demographic profile of investors is becoming more global and mobile.
The report further indicates that in the past year, 44% of investors with over £1 million worth portfolios used online platforms to access tax efficient investments. Examples of the online platforms are Hargreaves Lansdown and syndicate Room. Comparing the figure with traditional avenues of accessing the investments such as financial advisers that attract 30%, it is clear that the traditional means are a whole third less.
If you combine this with the findings indicating that 45% of the investors who claim to be ‘very satisfied’ with their financial advisors are unaware of EIS, you understand that financial advisors are not providing their clients with information on tax efficient products.
However, we can also apply traditional methods to early stage opportunities. An example of such a scenario is the Fund Twenty8™, a passive EIS fund launched last year with the aim managing risk by diversifying investment into early-stage equities.
Reviewing the market
According to James Sore, SyndicateRoom CIO and head of Fund Twenty8™, it is clear that the future of EIS is for those who provide easy and clear access to the passive asset class. It opens a great opportunity for advisors. If financial advisors can educate their clients on the benefits and risks of the scheme, they will play a huge role in creating a success story together with future investors. To ignore this growing demand means losing new forms of fin tech.
We can deduce from the report that the message that investors are passing across is; present to us tax incentives and diverse investments or we will look elsewhere.