Readying for Consumer Duty: How do tax-efficient investments fit into the big picture?

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For professional advisers and paraplanners only. Not to be relied upon by retail investors.

Article by Jessica Franks, Head of Investment Products at Octopus Investments

Consumer Duty comes into force from 31 July. It is set to place an increased focus on good customer outcomes and fair price and value.

But how will this impact advising on tax-efficient investments?

Dr Matthew Connell, Director of Policy and Public Affairs at PFS, explains: “Under Consumer Duty, advisers need to really understand the value they’re giving. That means the fees you charge, both the initial and ongoing fees, and the benefits you deliver.”

“We know that tax-efficient investments can add enormous value to a client’s financial planning and overall tax planning. Not just the products themselves, but also through the strategies around recommending them.” 

“It’s all about the client and what’s right for them,” explains John Higginbottom, Head of Regulatory Propositions at Bankhall. “For the right client, tax-efficient investments can help in achieving several goals. It might be helping to achieve tax free income or growth, to help plan for inheritance tax, or to mitigate some of the risks of investing in early-stage companies by making use of tax reliefs.”


Dr Brian Moretta, Head of Tax-Enhanced Research at Hardman & Co, is an expert in venture capital and author of the report, Does Consumer Duty oblige you to add venture capital to client portfolios? Brian hopes that Consumer Duty will encourage more advisers to consider the investment case underpinning Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS).

“Consumer Duty requires advisers and paraplanners to deliver the best outcome for their client,” says Brian. “I believe you need to consider venture capital, even if you eventually discount it, as it can lead to a better outcome.”

“Our research shows that when you add diversified exposure to early-stage companies into a client portfolio, through EIS or VCTs, this can increase expected returns. This is even the case when setting aside the impact of any tax reliefs.”


“Critically, with appropriate rebalancing, you can add venture capital to portfolios while maintaining the level of overall portfolio risk,” explains Brian.

So, what steps should advisers take to prepare for Consumer Duty when it comes to tax-efficient investments?

Linda Preston-Todd, Client Relationship Director at Bankhall, says, “If you’re not familiar with these investments you need to make sure you’re fully educated. You must understand the products in the marketplace and who they may be suitable for.”

“It’s a good idea to review all your clients to see where tax-efficient investments could deliver value and good outcomes.”

“And finally, you should be documenting price and value considerations.”

The risks of tax-efficient investments

Remember these investments place capital at risk. Clients may not get back the full amount they invest.

The shares of small and unlisted businesses are high risk, their price may be volatile, and they are harder to sell than listed shares.

There are also tax risks you must consider. Tax treatment depends on individual circumstances and tax rules could change in the future.

Tax reliefs depend on portfolio companies maintaining their qualifying status.


Next steps

Octopus Investments has an upcoming webinar to help you ready for Consumer Duty. Readying for Consumer Duty with tax-efficient investments airs on Tuesday, 20 June at 10 am and features Matt, Brian, Linda and John who will be exploring Consumer Duty in more depth.

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These investments are not suitable for everyone. Any recommendation should be based on a holistic review of your client’s financial situation, objectives and needs. This communication does not constitute advice on investments, legal matters, taxation or any other matters. Personal opinions may change and should not be seen as advice or recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. Issued June 2023. CAM013083.