There is a discrepancy between the appetite for investing in early-stage companies and advisers’ belief that their clients wish to do so, according to new research.
Just 17% of advisers think their clients are interested in the asset class, yet 45% of investors are keen to explore it, according to the data from Octopus Investments.
Octopus surveyed roughly 1,000 UK adults with investments partly or fully managed by an adviser and 200 UK financial advisers to uncover attitudes around investment into early-stage companies.
The research points to a perception gap; perhaps down to the point that over a third of financial advisers surveyed (36%) said that their client base has generally become more risk averse when they invest. Yet when it surveyed investors, a majority of 53% said they would be willing to take on more risk with their portfolio to achieve more growth.
Moreover, when investors were asked to rank their three most important investment priorities, targeting high growth was positioned higher than ISA and pension planning. This is compared to the adviser response on what they thought their clients prioritised, which put ISA and pension planning, diversification, and low volatility, all before high growth.
This 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 (VCTs) and only 27% advise on Enterprise Investment Schemes (EIS).
In spite of these figures, when advisers were asked about expected client scenarios in the next 12 months, clients targeting tax-efficient income (51%) was the second most popular response. This is in line with the exact same number of investors who said they would like more tax planning advice.
“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,” said Jess Franks (pictured), head of investment products.
“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.”
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