Preference gap between advisers and clients on exposure to early-stage stocks

Octopus survey of close to 1,000 UK adults who use an adviser

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A study from Octopus Investments published today (8 November) found that, while almost half of investors showed interest in engaging with early-stage companies, only 17% of advisers expressed a belief that it appealed to their clients.

The gap correlates with a perception difference on risk aversion. Although 36% of financial advisers reported that their client base was becoming more risk averse, 53% of investing clients claimed they would take on more risk in their portfolio for the potential to achieve more growth.

Investors also prioritised high growth above both ISA and pension planning, while advisers put high growth below these two categories, as well as diversification and low volatility.

See also: Octopus highlights ‘double discount opportunity’ in UK equities

Octopus surveyed close to 1,000 UK adults who use an adviser as well as 200 UK financial advisers for the project.

Jess Franks, head of investment products, said: “It is clear from our survey data that clients place significant value on being able to add early-stage companies to their portfolio where appropriate.

“Both EIS and VCT are high-risk investments targeting increased levels of return, but with quite different characteristics, meaning that there is a key role for advisers to play in ensuring clients are selecting the right products for the outcomes they are looking to achieve.”

The study also found room for growth in tax-efficient products for advising in Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS), which are currently only covered by 36% and 27% of advisers, respectively. In contrast, over 90% advise on pensions. However, over 50% of advisers viewed tax-efficient income as an expected client scenario, and investors showed similar interest.

“Considering tax-efficient investments offers a way for advisers to add meaningful value, which under Consumer Duty is something that is higher on the agenda,” Franks said.

“With a backdrop of high inflation, frozen tax thresholds and reasonable returns on cash, many investors will be looking to their adviser to suggest investments with higher growth potential. EIS and VCTs can be an interesting regular investment consideration, targeting higher levels of return in addition to the benefit of tax relief.”

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