The inclusion of Enterprise Investment Schemes (EISs) and Venture Capital Trusts (VCTs) in the FSA’s proposals to restrict the distribution of Unregulated Collective Investment Schemes (UCIS) and non-mainstream pooled investments will seriously limit client portfolio diversification opportunities, according to alternative investment boutique Future Capital Partners (FCP).
The changes suggested in CP12/19 will limit access to more alternative investments that have the potential for greater returns and will stifle investment into entrepreneurial companies which drive the economy forward, according to Piers Denne, director of sales at FCP.
“The forthcoming Retail Distribution Review (RDR) will deal with most of the issues that have historically resulted in the inappropriate sales of non-mainstream investments with the change to adviser commissions coming into force on 31 December 2012,” says Denne.
“We therefore believe a better way of regulating sales of these non mainstream investments would be to cover them under the scope of the new regulations, so that all ‘high net worth individuals’ or ‘sophisticated investors’ fall under the auspices of the RDR.”
FCP is keen that these types of investors are able to benefit from new rules on EISs which came into force in April this year. The potential for escalated growth compared to traditional asset classes, with the benefit of government support offered by the tax incentives, make these investments particularly appealing to these types of investors.
Denne adds: “In the past, some advisers have provided sophisticated client solutions without having more than a conceptual understanding of certain non-mainstream investments – like UCIS – and on occasions this has resulted in unsuitable advice.
“We strongly believe education, experience and knowledge are key considerations when assessing suitability of advice for a client, but urge the FSA to provide guidance and clarity on the notion that advisers could ‘outsource’ advice on non-mainstream pooled investments without compromising their independence.”
