Old Meets New

How to fit old fashioned client values into a brave new world of tax efficient investments? David Lovell, Operations Director at GrowthInvest explores the rise of the tax-efficient platform

Now that the dust is beginning to settle on the regulatory changes that came out of the Patient Capital Review and were brought into law in March 2018, the initial collective relief was that the government had seemingly listened with some intelligence. It did not take a wrecking ball to a key element of a successful UK economy in the coming years and has gradually given way to a cautious optimism that the tax efficient investment industry, can continue to impress, hold its own, and even look to expand to encompass a much wider audience of UK Investors.

If this is going to happen, and the proven successful incentives of EIS and VCT investing are to reach their potential, the industry needs to combine good use of available technologies with an excellent and all-encompassing approach to client service.

Room for expansion

While we will all be interested to see the exact impact of the change in regulation and removal of capital preservation schemes on the flows this year, it is probable that there will be at least a slight dip down from the record years of £1.8 billion of EIS investment and £728 million for VCT investment that we have seen over the last couple of years. However, the overall success of these schemes since their inception, with over £18 billion raised through EIS schemes, funding over 26,000 companies, is based on a surprisingly small number of investors:

Although there may look to be over 100,000 individual subscriptions into EIS each year, these are not the full story, as they do not take into account multiple investments by the same investors, a view which brings the numbers crashing down to typically less than 30,000 per annum into EIS, and are matched by low numbers of VCT investors (c.10-15,000 per annum).

There are around 2.5 million ‘advised clients’ currently investing in the UK marketplace, and while this number will not include all of the 250,000 UK taxpayers that earn more than £250,000 income, or the estimated 600,000 or so households with more than £1 million in liquid wealth, it will certainly include a significant percentage of them.

Even accounting for some nervousness around the (perceived) higher risk profile of investments in the new world, there are many external factors at play including pension caps, low interest rates, and an inability to get real returns in traditional investment vehicles, that suggest that many more of the UK’s high-net-worth and affluent investor population should be building EIS and VCT into their portfolios. If this is to happen, the process and availability need to be made as straightforward as possible, and new clients will expect the simplicity that technology and platforms bring in their day-to-day lives to be available to them.

An old solution for a new marketplace

The investor, or their adviser, will certainly not expect to have to manage these types of investments individually, and nor should they be restricted from being involved and interacting with this potentially more tangible and interesting part of their investment portfolio, should they choose to do so.

Technological advances are breaking down barriers – both real and perceived – across the UK investment marketplace. There is a paradox here that many of the high growth and growth companies that can be the ‘unicorns’ and offer the potential for double-digit returns in tax efficient investment portfolios, have traditionally been accessed via slightly archaic and administration heavy routes.

This is simply not compatible with an expansion of the market, and we can turn our eye to the recent past to find a solution that works for all parts of the eco-system, and one which places the adviser and their client at the heart of the solution:

The traditional adviser platforms transformed the UK adviser marketplace over the last 20 years, with over 90% of mainstream investment funds now flowing through platforms, and the growing size of this market has been to the benefit of fund managers as well as their clients. The move to platforms has also caused a marked change in the concentration of funds into the larger managers, with their market share dropping from near 70% to just over 40% in the last decade. A further, often overlooked client benefit of using platforms therefore is a certain inherent investment diversification. The unlisted nature of many of the qualifying tax efficient investments has meant that EIS, and to some extent VCTs, have not generally been made widely available on these platforms. This has in the last few years, led to specialist technology platforms such as GrowthInvest quickly gaining traction in the marketplace, and it is a move that draws more than a few parallels with the original rise of the platforms over the last 20 years.

Technology at work

Interestingly, while many of the 15-plus traditional adviser platforms all have different identities, and to some extent, target audiences, they use very much the same technology, and there is only really now a handful of underlying technology providers. So could it be that the technology and the bells and whistles, while the pride and joy of the product team, are rather less important than we might initially think? It is perhaps now unassumed starting point that there is good technology, seamless integration, bespoke reporting et cetera?

Over the last few years there has been increased focus has been on how technology affects the ‘user experience’ (UX). This is starting to change and evolve as the user experience with the technology being satisfactory (at worst) is taken for granted, and the battle is about the overall experience of the customer both on-and-off- line – the ‘customer experience’ (CX). Indeed, the latest surveys have pointed to the fact that traditional platforms tend to see poor customer retention if the customer service resources have been scaled back. Sounds obvious, but easy to do when technology upgrades are taking the budget.

Is this a return to the good old-fashioned values of looking after the customer? Something the financial adviser world has generally prided itself upon, at least for the most valuable clients. Certainly these values, that of treating the customer as an individual, are at the very heart of any CX experience, but now we have the underlying technology and integrated data to ensure that the experience is equally tailored online, and allows the client to have a seamless experience just as they would expect to with their current account or other online retailer.

The traditional adviser platforms transformed the UK adviser marketplace over the last 20 years, with over 90% of mainstreams investment funds now flowing through platforms

For a platform specialising in tax efficient investments such as GrowthInvest, this excellent client service needs to work for the underlying investor, and the adviser. Daniel Rodwell explained the approach:

‘GrowthInvest was originally founded by a wealth manager and the platform was designed for advisers. We believe the tax efficient arena is one where advisers can add real value to client portfolios and that more advisers should be using these products. However, for that to happen we need to provide support, education and an environment where advisers can manage their tax efficient business in a simple and familiar way and therefore provide the best level of service to their clients. Technology is only part of the solution.’

GrowthInvest has recently added Martin Cosgrove to the senior team, whose career has included over 20 years at Goldman Sachs and he brings a wealth of relevant experience. As part of the senior leadership team within the Prime Services Division at Goldman, where he was responsible for building a market leading product which provided market access, execution, custody and reporting services to their Global Hedge fund client base.

‘I have experienced first hand that client technology solutions are critical in driving investment into inefficient markets, and I feel that the GrowthInvest solution is solving a real problem within the advised market, as has been demonstrated by their traction to date.’

As such he is looking forward to being an integral part of the company’s strategy of providing an institutional standard offering to financial adviser and investor clients: The GrowthInvest team will certainly use the latest technology to make this happen, but believe this is only part of the answer, and will remain focused on providing excellent client service throughout every part of the ecosystem.

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