Eis Use Set to Increase Dramatically Amongst Financial Advisers

• Largest ever adviser survey on EIS reveals 61% of financial advisers believe their use of EIS in client portfolios will increase within the next 12 months
• Advisers want increased transparency in order to compare EIS schemes
• 57% of advisers choose EIS for portfolio diversification

In the largest ever survey of advisers on EIS for their 2015/16 EIS Industry Report, Intelligent Partnership found that 61% of the 297 advisers they surveyed believed that their use of EIS would increase in the next 12 months – an increase of 15% from the 2014/2015 survey.  This far-reaching adviser sentiment survey, commissioned by the Enterprise Investment Scheme Association (EISA) financial planning committee, was conducted online and at events including the PFS regional conferences from October to December 2015.

Lower pension limits and the threat to higher rate tax relief were cited as the two biggest drivers for increased use of EIS.

The most common reason for recommending EIS was the Income Tax relief, with 96% of advisers citing it as one of their top three reasons for recommending EIS. More than three-quarters, 76%, of advisers also cited Inheritance Tax (IHT) mitigation, perhaps reflecting a growing financial planning need among their client banks.

In addition to IHT mitigation, 57% of advisers stated that portfolio diversification was a primary reason for choosing EIS. What didn’t seem to concerns advisers, with only 10% citing it as a reason, was the opportunity to invest in a particular sector or business.

Daniel Kiernan, Research Director at Intelligent Partnership, commented: “It’s no surprise that advisers are expecting to invest more in EIS this year, as changes to our pension system have strengthened the investment case for tax-efficient investments like EIS. What’s perhaps more unexpected is the number of advisers who are utilising EIS for their IHT benefits. Perhaps this reflects the financial planning needs of clients who are concerned about passing on their wealth, but who don’t want to give us control of their assets or sacrifice any potential growth just yet.”

A majority of 56% of advisers thought that the investment manager’s performance track record was the most important consideration when selecting an EIS. This contrasts with results from 2014, where the most important factor given by 65% of advisers was the reputation and size of the investment manager. However, this year that figure dropped to 37%. This may suggest that smaller managers can compete with larger and better-known peers as long as they have the necessary track record. The quality of information provided was considered to be the second most important criterion, with 39% of advisers selecting this.

Sarah Wadham, EISA Director General, commented: “It is clear advisers are realising the importance of tax-efficient investments such as EIS, as changes to pension contributions and retirement freedoms mean that some clients will need more sophisticated planning – EIS can be a powerful tax planning tool for the right client.”

When respondents were asked to share their opinions on what single change or innovation would improve the EIS market, the most common suggestion was for increased levels of transparency, followed by the ability to better compare EIS schemes, making product sourcing, evaluation and selection easier.

This finding is consistent with adviser sentiment from the 2014/2015 survey.

A need for better education about EIS for advisers featured prominently in last year’s survey but was a lower priority this year. This suggests the industry and professional service providers have embraced this challenge and are now providing better quality education in this area. EISA, for instance, now offers an EIS Diploma, run in conjunction with Tolley Exam Training.

Keith Richards, CEO of the Personal Finance Society commented: “Tax efficient investing remains a priority for many clients the Society has seen increased interest from its members for more continued professional development (CPD) in this area.  The dedicated sessions on client suitability and the role of EIS at our regional conferences evidenced that this is a complex area of investment that demands sound technical knowledge. Executed well, the financial planning community can add real value to client relationships”