Understanding SEIS: IFA Magazine’s survey conducted with Nova Growth Capital

by | Mar 8, 2023

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A detailed look at the results of the IFA/GBI Magazine survey of our readers conducted for Nova Growth Capital.

A recent IFA Magazine survey was conducted in partnership with Nova Growth Capital, in which we posed some searching questions to our adviser audience to try to gain a deeper insight into how SEIS is perceived by them and their clients. The questions were not just focused on adviser knowledge and understanding but that of their clients as well, which allows us to identify gaps in awareness and knowledge and ensure that our educational focus is relevant and topical.

The questions ranged between those of general knowledge and thoughts of the scheme to the specifics of how aware their clients are of the tax advantages of SEIS and EIS within a diversified portfolio. Interestingly and perhaps unsurprisingly the overarching impression of SEIS is that it is an important scheme with positive and well understood benefits to UK Plc and although SEIS opportunities are still limited, almost all of those surveyed have a positive view on the scheme. Even amongst advisers who do not currently offer SEIS to clients, an overwhelming 92.75% think it provides a valuable contribution to the UK’s tax-efficient investment schemes. This bodes well for the future, with more advisers indicating they could eventually offer SEIS to clients.

 
 

What is apparent however, is that there are still gaps in knowledge and the overall use of the scheme and although the results of the survey were largely positive among those who offer SEIS to clients, there does remain however, a lack of exposure to options available through SEIS.

Knowledge and confidence

The survey indicates that most investors aren’t given the option of the scheme, with only 28% of those surveyed currently offering SEIS to clients. Of those who answered yes to a question on whether they are confident in explaining the SEIS scheme and its benefits to a prospective client a resounding and reassuring 95% of them agreed they do feel confident and half said they were interested in completing an SEIS-accredited course to develop their knowledge of the scheme

However, there is still a long way to go before clients are provided with a complete understanding of SEIS. 35% suggested that their clients are sometimes aware of SEIS, while the remaining 65% say their clients are rarely aware. Not one revealed that their clients were regularly aware of the scheme.

 

A reason for this limited knowledge might be explained by the way in which SEIS opportunities are offered. 60% of participants responded that they only consider SEIS opportunities for clients once the client asks about it, while 40% offer the opportunity in specific quarters of the year, with an emphasis on Q3 and Q4 towards tax year end despite the benefits of forward planning for clients into and beyond any single year. Interestingly 60% have used just one or two SEIS managers for their clients, while 40% have used between three and nine, which suggests a limited range of availability for clients to receive advice on this scheme.

Priorities for advisers and clients

When asked which qualities are the most important in an SEIS manager, 90% prioritised high due.

diligence in prospective portfolio companies. The next most valued quality was an experienced management team, with 70% of those surveyed highlighting this as a requirement. 65% agreed that strong past performance should also be valued highly. However, just 25% see online investor reporting as an important quality.

 
 

Fee structures

When it comes to the way in which SEIS fund managers charge, the overwhelming majority (70%) agree that it doesn’t matter which process is followed, provided the fee structure is made clear. Meanwhile, 20% think the best course of action is to charge individual companies, which would enable investors to have full tax relief. The remaining 10% think otherwise, suggesting that investors should be charged, thus allowing portfolio companies to have a better runway of funds.

The majority of respondees have used research providers MICAP, EISA, Hardman and Wealth Club as one of their chosen independent research providers, however over 30% recorded that they do not use any independent research.

Risk vs Relief

A wide range of reasons were given by advisers for hesitancy in advising in this area. Around 20% referred to SEIS as being unsuitable for their particular clients, a further 30% outlined a variety of the risks they see associated with SEIS and in some cases they mentiond that they believed EIS and VCT offered a lower risk profile. Almost 10% felt that these schemes were too complicated to advise on or administer, or that they needed to refer these on to their PI insurers, or that they were not authorised to advise on them.

 

Expansion of SEIS

When asked about the recent UK Government’s announcement of plans to expand the SEIS scheme from April this year, only a little over half (52%) were aware of the major changes taking place. 56.52% of all respondees said that they believe the UK Government and financial advisers are responsible for increasing investment levels into SEIS, while 40.58% think the responsibility lies with fund managers.

The overall impression taken from the survey is that despite many advisers feeling confident in their ability to explain and advise on SEIS (and indeed EIS and VCT as was noted) there is still much to do in order to help educate advisers on the benefits to their clients within a managed and diversified portfolio.

IFA Magazine and Nova Growth Capital are grateful to everyone who completed the survey and will continue to work towards increasing knowledge and insights into this important scheme.

 

For more information about Nova, please click here

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