Does Consumer Duty oblige you to add venture capital to client portfolios?

30 Jan 2023 / News Tax Enhanced Download the report

Venture capital and Consumer Duty

Suppose you were told that you could add an asset to client portfolios that would improve expected returns without increasing portfolio risk. Wouldn’t you be interested? Wouldn’t Consumer Duty force you to be interested?

Now, what if you were told that asset was venture capital? Perhaps some objections immediately come to mind, and, if they do, they probably relate to risk in some way. It is true that individual venture capital investments are riskier than the usual quoted equities or bonds, even after the excellent tax reliefs that SEIS, EIS and VCTs bring. But as a whole, they are also a diversifying asset class, and this is the key to making them essential investments.

Improving expected returns

It may sound too good to be true but, if past performance is replicated, you can improve expected returns without increasing portfolio risk. A sprinkling of venture capital should be a normal part of most investors’ portfolios. It means taking care with asset allocation, but this is how advisers add value.

Consumer Duty

Brian Moretta published a white paper in 2021 entitled ‘How much should clients invest in venture capital?’. With the introduction of Consumer Duty this year, portfolio diversification is becoming even more important, and in response Brian has written a summary of his white paper which is both highly relevant and easy to read. It focuses on how you can indeed increase portfolio returns without increasing the overall risk profile. Read it now to find out more.