Industry body sets best practice guidelines for tax-based investments

The Enterprise Investment Scheme Association (EISA), the representative organisation for members involved in investing in businesses through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), has published best practice guidelines to ensure that there is fee transparency within the industry.

Investee companies and investors using intermediaries to source and manage investments under the schemes are frequently both charged fees and the EISA guidelines are designed to bring complete transparency to enable level playing field comparisons to be made between all parties.

CEO of the EISA, Mark Brownridge (pictured) commented, “In the post-Covid world, there is a need to re-emphasise the benefits of EIS and SEIS as an attractive means of investment both for investors and early stage growth businesses We believe that transparency and clarity are important ingredients in this, which is why we have published the guidelines. Rightly firms are open to decide on their own fee structures, but as the industry association we are keen to see best practice being applied with both businesses and investors being fully aware of the fees they are being charged.”

An area that often causes confusion for financial planners is whether fees are being charged to the investor or the company, and how much of the investment is eligible for Income Tax relief. It is worth noting that the net effect of fees, whether charged to the company or the portfolio, is broadly similar in that the investee company is provided with a reduced level of available investment.

The Research, Education and Marketing Committee of EISA, in conjunction with leading financial planners, has formulated the guideline principles for advisers, so that they are equipped to ask investment managers the right questions enabling them to provide clear advice to their clients with accurate fee comparisons.

The guidelines focus on the level of fees charged at the outset and the anticipated fees that will fall due over the first five years of the investment, highlighting the impact on the amount of funds actually available for investing, the indicative level of tax relief available to investors, and clarity on what success fees may be payable by the business.

Chairman of EISA’s Research, Education and Marketing Committee, Martin Fox who has been driving the work said, “‘The complexity and variety of EIS fees has been highlighted by financial planners, for some time, as a barrier to making EIS recommendations simpler. By producing these guiding principles and inviting planners and advisers to ask the right questions of EIS managers, we are giving planners and advisers the tools to make fair comparisons”.

The EIS Fee Transparency Guidelines published by the EISA are as follows:

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