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How I use investment companies: Nigel McTear MSc, FIFP, FPFS, CFP

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1 January 2014

Signpost Financial Planning Ltd, Norfolk.

Nigel started Signpost Financial Planning in 2012. He has been a financial adviser since 2001, and prior to that held positions in the financial services industry.  Nigel manages £30-50m on both an advisory and discretionary basis and uses a bespoke discretionary manager for that service. Approximately fifty percentage of Nigel’s business in 2012/13 was in closed-ended funds. Most of Nigel’s closed-ended business is in Venture Capital Trusts, Enterprise Investment Schemes and IHT BPR schemes.

When advising clients, Nigel’s method is to set out three separate planning pots; cash (or near cash), risk managed and ideas.  Most of his clients are either at or close to retirement with an average age of 62.  He uses an algorithm to create bespoke portfolios for clients to ensure there is consistency in the evaluation method and in particular the link between the risk analysis and the final risk managed portfolio. 

What do you like about VCTs?

I favour the limited life VCTs such as Puma and Foresight.  I like the known exit plan.  I find with VCTs that it’s easy to get in but tricky to get out so the limited life VCTs with a known exit date where returns are made to investors is ideal.  I have found that if you wish to exit many VCTs, after the five year minimum HMRC holding period, that the unavoidable 10% discount to NAV often wipes out in the region of two years’ worth of returns.  In those instances I prefer planned exit EISs because they only have a three-year minimum holding period.

Do you favour certain geographical regions when thinking about investment companies for clients?

Infrastructure and solar have performed well in the past with natural liquidity points and I’ve invested significant amounts in Foresight and lesser amount in Octopus, Edge and Downing. With the Foresight Solar VCT, it was great to be able to tell clients that not only have they had the promised income stream for the last few years, but they can also get an above targeted return!

And what do you dislike?

The big problem is discounts on exists and the reduced return to shareholders.

What could boards or the AIC do more to help advisers understand investment companies?

More education and opportunities to meet the managers would be helpful.

Are there any tips or thoughts you could pass on to other advisers to help them understand or advise on ICs more frequently?

There is no substitute for making contact directly with VCT companies, do your due diligence and then go back to them with your questions.  Understand the underlying trades.  Do they make sense? You should apply a common sense check. Don’t let the ‘tax tail wag the dog’!

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