PROVIDERS AND ADVISERS –IS THE COMMUNICATION GETTING BETTER?

At a Round Table session in November hosted by Calculus Capital, one of the main topics was the varying criteria that make an investee company attractive to capital providers and to IFAs and their clients. Chairman for the day Richard Angus, of Hardman & Co, wanted to know if the two sides were beginning to understand each other better.

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They are,” said Bruce Elliot-Smith, CEO of Venture2Grow. “I’ve gone from when there was no provider information, no IFA involvement, and I was doing demos for about a year, so I was getting a lot of feedback. Then the GrowthInvest platform came along. I raised money for hundreds of companies. When I met new IFAs, I knew they just wanted to know how to do it.

“The first thing that is asked is what is different about the provider? It could be track record but the big thing that made a difference was taking the investment, so I found when you introduced the company, it would spark the interest to look at that provider. “Let’s face it, IFAs want clients, so if they meet the CEOs of the companies, it changes as they develop a relationship with that provider. That became the norm for me, and more recently I have another trend which is in philanthropic investing. If you have that element to your fund, it makes it easier for me to go that way round, so I’m essentially in the adviser’s shoes working backwards.”

Andy Davidson, CEO of We Are Nova, agreed. “It’s a dichotomy, you should look at data, portfolio spread and how to maximise returns, but that can be perceived as dull. If you can get your client in front of someone who talks well, that really works. People do get excited so you need to say it’s great, but it might not work, so spreading the risk out allows you to match up the interest with the financial element of needing to build a portfolio.”

IFA Clive Nicholas, Director of Morgans, noted that “As IFAs, we have to look at who’s managing these and investigate whether they’re managing them properly. We have to look at day to day money; if we give you money, how quickly it will be deployed? We need to know about these things and finding out it’s fair to say can be very difficult. The key question we want answer is what’s lined up and when are you likely to put that money in?”

Glencross of Calculus Capital agreed and added “We’re aiming for 15 months. I think we’ll get closer to a year as we go through the first part of next year. If I talk to investors now, I say 15 months to invest that money. Each investment gets an EIS3 but the timescale to get an EIS3 varies, if we’re the only investor it can all be given to the revenue within a week, the revenue will probably come back in six weeks with the forms.

“The challenge is, if we’re co-investing with someone and getting their investment, I won’t invest alongside a so-called private client investor. If a private client investor comes into an investment, and sometimes they do, it can be very difficult to get the tax details for all the people, so we tend to invest with a knowledgeable peer group and do lots ourselves,. That way it can be a quick process and investors will start to get EIS3s in a few months, but my aim is to bring that 15 months down to 12.”

Curran Anstock, Director at Tilney Financial Planning commented: “Engagement is a really important aspect of it. People want to know where their money is being invested and what it’s doing. We’ve had a change towards a more philanthropic mindset of wanting to help, so knowing you’re close to these companies and working with them gives us a lot more confidence speaking to clients to say we know what management is being provided and that’s a great comfort to the client to know there are processes in place.“

Asked about understanding the investment opportunity and communicating it to his clients, Kalp Shah, IFA at Vintage Wealth, was confident. “I’m comfortable with the investment and the engagement part is easy. My clients trust me, if I say it’s good for them, that’s it, but I’m not confident investing their money in something they don’t understand. Further down the line, they could complain.

“I like Andy Davidson’s idea a lot, where they can put the money in monthly and then it’s spread, that reduces the risk a lot. I would explain to my clients that you don’t just chuck the money at a company and it gets invested. There is this statistic that 90% of companies don’t make it past year three...It’s the support the company is getting, it’s not just giving them the money, you’re asking them for accountability and you’re supporting them, so they have a much better chance of being successful. They’ve learnt how to invest money better and provide that support. This is what I would do. I’ve started to go into VPR investments, but with 4-5 different providers and I would do the same with EIS.

Andy Davidson raised a common gripe: “We also need to remove 18-page application forms.”

Chris Sandfield, CEO of Co Investor, offered a solution – “I have an efficient service where you only have to fill out the form once and can apply it to all the funds.”

This would suit Tim McKechnie, Investment Director of S4 Financial: “You can end up with a position where you’re waiting for 15-20 different EIS3s. If that were automated, which is where you come in, if we could do that with one application and one set of reporting to clients, that would be easier. A challenge we have is with regard to some of the EIS funds, you suddenly have a number of providers or fund managers who have completely changed their game and are investing in an area that doesn’t fit. As far as that’s concerned, it does make it more difficult. These companies who were the stalwarts are now going into areas that we need to be confident they understand.”

From an investor perspective, going back to this, the clients want to know what they’re going to be investing into, that’s why investing into an individual with someone they know is easier because they like him and what he’s doing.

The whole deployment period is also difficult as I’d like to be able to invest all the money we get in 12- 15 months. We’ve got a hefty portfolio, so we have 45 companies and we know they’ll all raise money in the next 12 months, so we currently deploy funds quarterly and are looking to monthly.

Tim McKechnie added “this comes down to automation and single application. We’ve seen this with simple cash accounts, now there are aggregators where they spread the money. Unless you have something like that, investor apathy is such that if they have to fill out 10 forms, they can’t be bothered.

If they can’t be bothered to do it for their own bank accounts, it’s hard to sit down and run through 5-10 different applications for funds. It’s easier for them to invest in one company that they know.

The Chair asked the fund providers how much was dictated by the end of the tax year? The consensus in the room was that it was too much.

In response Clive Nicholas observed that it shouldn’t be difficult because of the carry back provision and it shouldn’t be an issue. He said “We’ve talked about selecting companies, but not exit strategies, which is equally important. If your money is locked up for longer than expected, are there exit strategies in place?” One of the key takeaways from the day was that the industry is changing and technology solutions will allow more people to invest.

“We’ve got technology now that can make it efficient,” offered Chris Sandfield. “We’re speaking with a number of fund managers about standardising an application pack, a lot of them are keen. More importantly, what can technology do next? I’m encouraged. My background has been asset allocation, and I think we all recognise that what the industry needs to do next is to utilise technology to bring the funds together for an easier way for investors and advisors to have an automated diversification process.

“That de-risks investments and creates some liquidity for the smaller fund managers who don’t have the marketing budgets but have specialised teams. If tech can facilitate diversification, I’m encouraged by the openness to explore that and I’d like to pick up on that in another round table.”

Clive Nicholas liked this; “I think the process we have in house is on the right track, selecting the EIS providers, but I’m encouraged there will be technology to help us in getting more diverse portfolios. 18 pages on one form is a nightmare and having EIS3 forms coming out of our ears, the clients don’t know where they are, so this is very encouraging.”

As the session drew to a close, Ketan Patel, financial planner at Prerak Financial Services, observed: “We’re a cautious firm. What I got out of today as I’m sure we all did is that it’s useful to really understand the providers. We spend a lot of time doing due diligence on which products to recommend, and sometimes we have to handhold clients all the way through and it’s an expensive process. This is a value-added service we provide, so I hope we’ll get the reward over time.”

GBI