News & Views
VCT investors deserve a fair deal
Posted by Arek Martirossian on 30 Jan 2014
From an economic point of view, 2014 has started pretty well: unemployment is down and the latest GDP figures were far from disappointing.
The signs that UK plc has turned a corner are certainly encouraging, and investors will be entitled to expect another year of healthy gains.
New figures for the venture capital trust sector from trade association the AIC show how well VCTs have been performing.
In terms of share price total returns, the average trust is up 8 per cent on last year, 24 per cent over the past three years, and 53 per cent on five years ago.
So it’s no surprise that the popularity of VCTs is on the rise. Alex Macpherson at Octopus, for example, says the VCT funds his company manages have hit their highest ever level, while fundraising is up almost 70 per cent on 12 months ago.
As the economy expands, more and more small firms will be seeking funding. But the ongoing difficulties at some of Britain’s largest banks mean that tax-efficient vehicles such as VCTs and enterprise investment schemes have an increasingly important role to play in directing capital where it’s needed most, and getting the UK back on its feet.
Here at WealthMe, we want the process of investing in VCTs and EISs to be as painless and transparent as possible.
We know that many investors want to be able to simply choose their funds and complete the transaction.
But we also recognise that investors are, quite rightly, becoming more concerned about the opaque nature of many of the charges associated with funds and trusts, especially those which are imposed year after year for no discernible reason.
The Financial Conduct Authority has already clamped down on the annual trail commission payments made to financial advisers who recommended certain investments.
Too often, trail was “earned” by advisers who offered little or no ongoing help to their clients after their initial guidance.
But the idea of taking money out of investors’ holdings to pay trail commission to a company which runs an execution-only platform, where clients make investment decisions without no outside whatsoever, makes even less sense.
The WealthMe philosophy is simple: we are here to facilitate your initial investment, so then – and only then – do we take our cut.
If the manager of a VCT, say, wants to give us a commission payment in subsequent years, this money will go back to you, the investor, either in the form of an increased shareholding or a reduction in the annual management charge.
In too many cases, this type of commission payment is disguised from investors – typically hidden inside the manager’s administration or running fees.
Of course, WealthMe’s decision to charge a transparent upfront rate for its service is not an act of charity. But the fact is that the way the investment industry charges its customers has to become clearer and fairer.
Providers can either make these changes willingly or be dragged kicking and screaming by the regulator.
I hope it’s obvious which option we prefer.
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