It is still early days for the new regulator, but if today’s long-awaited consultation announcement on the distribution of unregulated collective investment schemes to retail investors is anything to go by, we can be optimistic that sensible policy will be developed.
The declaration that the enterprise investment scheme is to be excluded from the further marketing restrictions for Ucis is the right one because it will continue to allow more choice for advisers and their clients. In addition, it puts the FCA on the same page as the Treasury which, in April 2012, published enhancements which brought EIS further into the mainstream.
With the FCA decision, advisers have been provided with the clarity they need. It means they will have to consider EIS for their wealthier clients if they want to provide independent services. Investors have been disappointed with the returns delivered by traditional asset classes in recent years and are looking at alternatives. EIS offers the potential of significant growth to portfolios and, in particular, we expect that EIS will become a key part of retirement planning for the increasing number of people at or near the pension cap.
Support for EIS has however been growing for some time, in particular through the regulatory changes made by the Treasury in April 2012. This decision doubled the annual allowable amount an investor could deploy through the EIS – from £500,000 to £1m – and expanded the amount of funds each company can raise in a year from £2m to £5m. By doing this, the Government improved the funding situation for smaller companies which is crucial as banks are still largely unwilling to lend. However, the changes in April 2012 also opened the EIS world to a much larger list of businesses, many of which are more established.
In making today’s announcement, we are pleased that there is a recognition of the important contribution that EIS make to the UK economy as a whole. We believe that the FCA’s decision will bring considerable growth to the EIS space – potentially reaching £2.5bn within the next three years (from an estimated £800m last year).
Brett Williams is managing partner at Old Burlington Investments