Last month Tax-efficient investing in a digital world was published, becoming the latest in a series of reports delving into investor attitudes in the UK. The report made it clear that online platforms are gaining popularity year on year, with investors of all ages eager to diversify into early-stage businesses and take advantage of the Enterprise Investment Scheme (EIS) tax reliefs on offer (see ‘What are EIS funds?’ for more information). And why shouldn’t investors want a slice of the action? After all, early-stage equities showed a 33% compound annual growth rate in 2011–16, compared to 5% for London Stock Exchange main market companies, which is why it isn’t a surprise that EIS investments have returned to the spotlight according to the Financial Times. However, EIS investments are not appropriate for everybody: their potential high return comes with high risk.
The UK boasts a world-class early-stage investment culture; the combination of younger investors looking for an alternative and older, more experienced investors seeking out diversified returns is powering an explosion of interest in funding private businesses. We’re seeing huge waves of change across the financial services industry. With new technologies disrupting the status quo, the world of finance is definitely changing – and fast.
It’s clear that early-stage equities are a solid asset class in today’s low-yield environment, and that EIS provides an incredibly attractive benefit to engage with it. But what’s even more interesting is the way in which investors are accessing early-stage equities, which in turn reduces the importance of borders. The report, which is supported by the Enterprise Investment Scheme Association, showed that the demographic profile of the investor is changing: they are becoming more global – and more mobile.
The research shows that 44% of investors with portfolios worth over £1m accessed tax-efficient investments through online platforms like Hargreaves Lansdown or SyndicateRoom in the past year. This finding becomes very significant when compared the same figures for traditional avenues such as financial advisers, which attract 30% of investors – a whole third less.
