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Octopus unveils VCT adviser charging regime

by Rachael Revesz on Jan 16, 2013 at 16:06

Octopus unveils VCT adviser charging regime

Octopus Investments has unveiled its adviser charging regime for Venture Capital Trusts (VCTs) under the retail distribution review (RDR).

For advice received with ongoing charges, the VCT will facilitate an ongoing payment of up to 0.5% of the holding's net asset value for nine years, while the initial charge will be up to 2.5%.

For advice received without ongoing charges, the initial charge facilitated will be up to 4.5%.

For applications made through an intermediary but with no advice given, the VCT will allocate an annual 0.5% for nine years to the adviser, and up to 2.5% initial commission.

This means investors will benefit from the 30% income tax relief on the full amount of their investment before allocating a certain proportion of the funds to the adviser.

If the client agrees lower fees with their adviser, the intermediary can issue the investor with extra shares in the VCT instead.

Octopus managing director Paul Latham (pictured) said the firm 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,’ he said.

6 comments so far. Why not have your say?


Jan 16, 2013 at 17:23

So the investor still gets tax relief on the gross amount of the investment, and the "adviser charge" is paid to the adviser by the product provider after the investment has been made.

How exactly is this any different from the pre-RDR model, other than substituting the word "commission" for the words "initial charge"?

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Adam Grant

Jan 16, 2013 at 22:49

@ Scroogio I assume the AMC/TER will be reduced to reflect the fact that the investment co have not had to pay commission

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Adam Smith

Jan 17, 2013 at 09:22

"For applications made ... with no advice given, the VCT will allocate an annual 0.5% for nine years to the adviser, and up to 2.5% initial commission."

And exactly WHY would I agree to pay an adviser for not advising me? Surely the point of adviser charging is to pay for the advice the adviser gives me? (I know that's a badly-constructed sentence, but it emphasises the point I'm trying to make). Would it be a breach of Principle 6 (TCF), or just plain fraud?

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Jan 17, 2013 at 09:34

@ Adam Smith

I assumed that by "adviser" they actually mean "intermediary" here - for example if you bought a VCT without advice from Hargreaves, HL would still expect to be paid by the VCT provider for offering their product. I agree though it seems unfair that they still get a cut which is actually the same size as IFA would get if facilitated by the provider!

@ Adam Grant

I'm not sure the costs are lower - if the VCT provider is facilitating a 2.5% adviser charge plus 0.5% per year, and in addition taking their own cut (presumably another 2.5%) then the amount being deducted from the investment is exactly the same as it was pre-RDR!

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Simon Kershaw

Jan 17, 2013 at 09:42

Would the first provider to break ranks and offer commission on XO investment bond business please make themselves known. After all, this would mean the client receives full tax deferred status on his investment as opposed to the crappy deal he now gets with adviser charging.

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Jan 17, 2013 at 12:41

@ Simon Kershaw

How many people do you think understand the tax implications of an investment bond enough to buy it execution-only? In my experience investment bonds have to be "sold" by an adviser - not many people spend time looking for one.

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