Risks and Commitments
Important Risks and Commitments
Investing in start-up and growth companies involves a high degree of risk. You need to be aware you could lose all or some of the money you invest.
Across the portfolio of companies invested in by the products, it is significantly more likely that you could lose your invested capital in any one underlying company than make a profit from it. The risk/reward ratio of investing in very small companies is inflated as the risk of failure is higher. However, a well-diversified portfolio run by a good manager should generally mean that overall returns across the portfolio should be positive.
All products featured on the Wealth Club website are higher-risk investments and generally considered to be long-term investments. Although the official minimums are 5 years for VCTs, 3 years for EIS and SEIS investments and 2 years for IHT schemes to retain some of the tax reliefs, you should consider them as much longer-term investments.
Wealth Club Limited offers an execution-only service to Sophisticated and High Net Worth Investors; Wealth Club does not give advice or recommendations.
VCTs, EIS, SEIS and IHT Schemes (and any such related and/or future product types) are complex products and not suitable for all investors. If you have any doubts as to the suitability of a particular product, or the product class in general, or require advice of any kind, you should obtain specialist financial and taxation advice from a professional adviser.
Do not invest in these products unless you have judiciously thought about whether you can afford it and whether it is right for you.
Please refer also to the risk warnings and other information contained within the Prospectus, information memorandum or other offer document for the product that you have chosen, together with Wealth Club Limited’s Terms of Business.
The investment strategies and styles of particular fund managers across and within the product sectors can vary considerably and investors should be familiar with the approach to be adopted by their chosen manager.
As minority shareholders in the invested companies, neither the fund manager nor the investor, will normally have any influence over the investee company’s activities with regard to strategic decisions. In some instances, VCTs do have a member on the investee company board but this should not be relied on in every case. An unchecked change in activities by the investee company could result in the loss of tax relief qualifying status.
Make sure you understand all the risks and benefits before investing. You should not invest more money than you can afford to lose without altering your standard of living.
Diversification of your investment portfolio
By spreading your money across multiple investments you can reduce overall risk. Diversification is an essential part of investing.
You should invest relatively small amounts in a range of investment opportunities rather than concentrating your investment in a small number of products or companies. By building a diversified portfolio you spread risk and increase the chance of an overall return on your investments.
You should invest only a limited proportion of your available investment funds in start-up and growth-stage companies and should balance these investments with relatively safer, more liquid investments with a more predictable and secure return.
Specific administrative risks
For VCT, EIS and SEIS funds and portfolios the manager may not be able to invest as quickly as anticipated. This could reduce the return on your investment and the VCT, EIS or SEIS may lose its classification status. The underlying companies invested in may also lose their qualifying status if they do not comply with specific HMRC requirements throughout the relevant period. Additionally, where appropriate, tax relief could be delayed or denied.
There is no guarantee that HMRC will grant qualifying Business Property Relief (BPR) on each investment selected by the IHT Scheme manager. Investments are selected by the IHT Scheme Manager in good faith but loss or non-granting of IHT Company status for BPR is an underlying risk.
Past performance is not and never should be used as a guide to future performance and there is a risk to the capital invested.
The value of investments and the income from them can fluctuate and may fall and there is no certainty an investor will get back any part of their investment.
Investments in smaller companies will generally not be publicly traded or freely marketable (AIM status notwithstanding). There will most likely be a big difference between buying and selling price. The price could be subject to rapid fluctuations in value.
There is no guarantee that any downside protection insurance policy operated by the investment manager will continue following the first or subsequent renewal date, or that it will pay out if a claim is made owing to a number of exclusions.
The price which fund managers may realise for their investments and the timing of any such realisation may be influenced by a large number of factors, some of which are specific to the investment and others of which are extraneous.
The ability of the fund manager to sell shares or other securities will depend on there being a willing buyer for such shares at an acceptable price. Consequently, it might be difficult for a fund manager to realise their investment.
In the event that a company becomes unable to meet its debts as they fall due, investors through their fund manager may realise less than their original investment.
All products featured on the Wealth Club Limited website are subject to special tax considerations. Please refer to the individual prospectus or other offer documents for specific taxation aspects of the chosen product.
You should note all illustrations will be based on assumed rates of tax applying at that date. Taxation types, levels and bases can change.
The tax treatment and eligibility for the tax reliefs of all products featured on the Wealth Club Limited website depends on the individual circumstances of each investor.
Income Tax relief cannot exceed your Income Tax liability.
Tax reliefs are not guaranteed, depend on the entities invested in maintaining their qualifying status, and may be withdrawn at any time by HM Revenue and Customs.
On IHT Schemes, although product providers operate the schemes with the intention that investors will qualify for IHT relief after holding the underlying shares for a two-year period, there is no guarantee that this will be achieved or maintained.
Tax relief already given may have to be repaid should the investment not comply with the relevant regulations during the relevant period e.g. is not held for the minimum qualifying period.
Changes in tax or other government legislation could adversely affect the value of the VCT, EIS, SEIS or IHT Scheme. Other investment product types could become more tax efficient during the lifetime of your investment.
Past UK Government Budgets have changed company size and type criteria for meeting VCT, EIS and SEIS investment eligibility requirements. Investors should be aware such amendments may alter the underlying risk profile of current offers relative to previous years’ offers they invested in.
We reiterate that if you are in any doubt about any tax aspect of your potential investment, you should consider obtaining specialist taxation advice.
Charges and performance fees
Investors should consider the charges fund managers of these products will levy, in particular any performance fees, as these will affect the performance of your investment.
Initial charges, other upfront and ongoing costs will reduce the value of your investment. Some of these costs will be fixed in nature so if the fund or portfolio is smaller than envisaged these fixed costs will have a greater impact on performance.
Smaller funds or portfolios held by the fund manager may be less diverse (increasing risk) and prove costlier to manage.
The level of these charges may be greater than for other Retail Investments such as Unit Trusts or Open Ended Investment Companies. For example, dealing costs incurred by the investment manager to trade in underlying investments may be significant.
Selling the investment
All underlying investments in these products are illiquid. The secondary market for these investments is very restricted and current performance information that affects price is less readily available. Consequently, these investments may be extremely difficult for fund managers to realise at fair or market value, meaning that you may have difficulty in obtaining a satisfactory sale price, if at all.
Certain VCT products may have buy-back policies in place. Any such buy-back policies are always subject to liquidity and historically the directors of some VCTs have withdrawn buy back policies or changed the level of the discount at which purchases have been made.
Shares in VCTs typically trade at a discount to Net Asset Value (NAV). As the VCT distributes its realised capital gains the NAV, even when the VCT is successful, tends to decline to reflect the distribution during its lifetime. This affects pricing.
There is currently no effective secondary market for VCT shares, primarily because the initial income tax relief is only available to those subscribing for newly issued shares. This compounds the difficulties shareholders may encounter when attempting to sell VCT shares.
EIS and SEIS shares are typically unquoted securities often issued by private companies. Restrictions may apply to the transfer of these private company securities. It is likely that market makers will not be able or want to deal in these securities.