Octopus leads the way with innovative VCT charging solution
Advisers and investors can agree initial and ongoing charges on Octopus VCTs in line with RDR
Octopus’ unique solution does not reduce the value of the investor’s initial investment enabling them to get maximum benefit from the tax relief
Octopus today announced its new adviser charging solution for its Venture Capital Trusts (VCTs), which will enable investors to pay initial and ongoing fees to their advisers in line with the new adviser charging rules introduced by the Retail Distribution Review (RDR). Octopus has brought a unique solution to the market that gives its investors the flexibility to pay fees to their advisers without reducing the value of their initial investment qualifying for tax relief.
In a survey conducted by Martin Churchill for Tax Efficient Review in October last year, 70% of advisers said that they wanted VCT managers to facilitate ongoing adviser charges. Paul Latham, Manager Director at Octopus, commented: “We have listened to our customers and worked hard to develop an innovative solution that gives our investors the flexibility to pay both initial and ongoing fees to their adviser without losing out on the tax benefits that VCTs offer. And our approach is very flexible: advisers happy not to receive these fees have the opportunity to pass on the value to clients in the form of additional shares in the VCT. It is a win-win situation for our advisers and investors giving them as much flexibility as possible without disadvantaging direct investors in the VCT.
“VCTs are an important part of many investors’ portfolios, and are increasingly being recognised as a complementary tax planning tool to pensions and ISAs. We want to ensure they continue to be an attractive investment opportunity for our investors and their advisers in an RDR compliant world.”
Octopus’ solution enables its investors to continue to invest their total investment amount into the VCT in order to benefit from the tax reliefs associated with the product, which includes 30% income tax relief. Once invested, a set portion of the funds will be used to pay initial and ongoing adviser charges. If an investor has agreed to pay their adviser less than this set amount they will be issued additional new shares in the VCT. Full details of these charges can be found below.
One of the challenges that RDR created for the VCT industry was finding a fair solution that would enable investors in a VCT to have the flexibility to pay ongoing fees to their advisers, without disadvantaging other investors in the VCT who might be direct investors or those not paying ongoing charges.
Previously most VCTs paid fees to the investment manager who then used part of this fee to pay advisers their commission. But RDR, which came into effect on 31 December 2012, has radically changed the way financial advisers are remunerated. Commission is now banned and in their place adviser charges – both initial and ongoing – have been introduced to give investors more flexibility in how they choose to pay their advisers.
Paul Latham added: “One option available to VCT managers is to take the adviser fees out before the VCT shares are purchased. Whilst we could have chosen this option, this was not what the majority of our customers wanted. We also wanted to find a solution that enabled investors to benefit from the full tax relief on their investment. This meant finding a way for them to pay adviser charges once their investment was made, rather than carving out some of their investment to pay adviser charges before it was invested.”
Octopus’ VCT charging solution has been accepted by the UK Listing Authority ahead of Octopus launching new fundraising for Octopus AIM VCT, Octopus Second AIM VCT and a linked offer for Octopus Titan VCTs later this month. Octopus’ Apollo VCT is already open for further investment.
ADVICE RECEIVED – WITH ONGOING CHARGES
Initial adviser charging: The VCT will facilitate a payment of up to 2.5% of the subscription amount to advisers. If investors choose to pay their adviser less than that amount, the remainder will be used to purchase additional shares for the investor.
Ongoing adviser charging: The VCT can facilitate annual payments to advisers of up to 0.5% of the net asset value of the holding for 9 years. If investors choose to pay their adviser less than 0.5%, the remaining amount will be used to purchase additional shares for the investor.
ADVICE RECEIVED – WITHOUT ONGOING CHARGES
Initial adviser charging: The VCT will facilitate a payment of up to 4.5% of the subscription amount to advisers. If investors choose to pay their adviser less than that amount, the remainder will be used to purchase additional shares for the investor.
Ongoing adviser charging: N/A
APPLICATIONS MADE THROUGH AN INTERMEDIARY BUT NO ADVICE RECEIVED
Initial adviser charging: An initial 2.5% commission will be available, to be paid by the VCT to the intermediary.
Ongoing adviser charging: An annual trail payment of 0.5% of the net asset value of the holding will be paid by the VCT to the intermediary for 9 years.
DIRECT APPLICATIONS (no intermediary)
Initial adviser charging: The VCT will pay Octopus 2.5% of the investment.
Ongoing adviser charging: The VCT will pay Octopus 0.5% per annum for 9 years.