The restriction will affect the promotion of non-mainstream pooled investments, but will not affect investment trusts or mainstream structured products (i.e. those linked to the performance of shares or bonds on a regulated market). At the moment, the exemption does not include Venture Capital Trusts (VCTs), but VCTs are listed investment companies and so it is hoped by many that they will not be affected by these measures.
UCIS are unregulated collective investment schemes, and as such are unlikely to have any form of investor protection. The FSA sees them as high risk and only suitable for some high net worth and sophisticated investors. They include funds investing in fine wines, overseas agricultural production and timber. Non-mainstream pooled investments also include traded life policy investments.
The restriction is that firms will only be able to promote these products to sophisticated investors, and high net worth investors, with the onus on the adviser to ensure that clients genuinely fall into one or both of these categories. The effect will be a narrowing of the group of investors to whom UCIS can be promoted. It will probably push the marketing of these schemes offshore (expatriates beware!). It is likely that the effect of this on UK pensions will be that the range of assets available in SIPPs will be considerably less than now.
So long as it doesn’t affect legitimate tax planning using VCTs and EIS, I believe this is a thoroughly good thing. When the stockmarket doesn’t look very attractive, people naturally cast around for alternatives to invest in, and therein lies the danger. Far better to stick to the mainstream!
Jeremy Davis
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
