Research from Octopus Group has revealed a sharp discord between adviser and investor appetite for early-stage companies.
According to the findings, nearly half (45%) of investors are keen to explore the asset class, but just 17% of advisers think their clients are interested in investing in early-stage companies.
More than a third (36%) of advisers also believe that their client base has generally become more risk averse when they invest, but in contrast 53% of investors said they would be willing to take on more risk with their portfolio to achieve more growth. Moreover, investors ranked targeting high growth as more important than ISA and pension planning, while advisers thought clients prioritised ISA and pension planning, diversification and low volatility all before high growth.
The gap is also reflected in what advisers currently recommend to clients when it comes to tax-efficient products, specifically those that invest in early-stage UK companies. While more than 90% advise on pensions and ISAs, only 36% advise on venture capital trusts and only 27% advise on enterprise investment schemes.
However, advisers and investors were more aligned on expected client scenarios over the next 12 months, with clients targeting tax-efficient income the second most popular response from advisers (51%) in line with the exact same number of investors who said they would like more tax planning advice.
Jess Franks, head of investment products, said: “Considering tax-efficient investments offers a way for advisers to add meaningful value, which under Consumer Duty is something that is higher on the agenda. With a backdrop of high inflation, frozen tax thresholds and reasonable returns on cash, many investors will be looking to their adviser to suggest investments with higher growth potential. EIS and VCTs can be an interesting regular investment consideration, targeting higher levels of return in addition to the benefit of tax relief.
“It is clear from our survey data that clients place significant value on being able to add early-stage companies to their portfolio where appropriate. Both EIS and VCT are high risk investments targeting increased levels of return, but with quite different characteristics, meaning that there is a key role for advisers to play in ensuring clients are selecting the right products for the outcomes they are looking to achieve.”
