Two: how consistent have the returns been?
One of the reasons clients may prefer unquoted BR options is because they do not want their investment to experience the volatility of the Aim. It is therefore important to determine the target returns offered by the unquoted BR manager, and whether they have managed to achieve those returns over a consistent number of years.
Some unquoted BR managers have been around for a significant amount of time, so it is worth getting an understanding of whether they have managed to achieve consistent returns through full economic cycles, as well as demonstrating resilience through major events such as Covid-19, for example.
Whatever the direction of inflation, interest rates and other macroeconomic factors from here, the next decade for investors is unlikely to be similar to the last, as a period marked by exceptional monetary policy potentially gives way to a new normal that looks a lot like the pre-global financial crisis orthodoxy.
Three: what is the experience and track record of the manager?
How experienced is the investment manager? Does it have an established track record of managing investments that qualify for BR? The needs of clients can often change over time, so an investment in BR-qualifying companies must be flexible enough to continue to meet their needs throughout later life.
One of the risks with investing in unquoted companies is liquidity. Therefore, the manager’s track record of returning money to investors should also be looked into, as liquidity will be a key consideration for some clients.
It is worth asking what their liquidity target is and, more importantly, what their liquidity track record has been. Clients should know at the outset how long the manager takes on average to deal with any withdrawal requests.
Understanding this enables a client to appreciate the true nature of the investment they are making, and the potential for their investment goal to be achieved. It is also worth remembering that BR cannot be guaranteed; it is only granted by HMRC on a case-by-case basis after the death of the investor.
It is therefore worth asking managers how their BR-qualifying companies are run to achieve the relief, and whether the provider knows of any instances where HMRC has challenged the IHT-exempt status of a deceased client’s estate. Knowing the wider context around the BR regime, rather than possessing the ability to simply nominate products or providers that currently qualify, or seem to qualify, for BR.
Of course, there are rules in place, but rules can change and in the case of BR there is more subjectivity than in many other instances around the tax-efficient status of some of these companies.
