The PI renewal list you should pin to your wall

Every year, when PI renewal comes around, we work through the same page.

Have you recommended structured products? Geared or leveraged investments? Tax mitigation schemes such as VCT, EIS, or BPR? Peer-to-peer lending? Traded life policies? Absolute return funds?

Sixteen categories in total. And every year, the answer is no across the board.

That list is a compliance formality in name only. It is a map of the industry's worst instincts, drawn up by the people who carry the financial risk when things go wrong. The underwriters are pricing reality.

We have been thinking about this a lot lately, following The Telegraph's reporting on Octopus Investments and their Business Property Relief scheme, Fern Trading. The numbers are large: £3.2 billion under management, 18,000 investors, average holding of around £177,000. Fern made loans to businesses connected to the wider Octopus Group, including a private hospital group where investors ultimately suffered a £42 million loss, and a retirement-village developer whose loan was entirely written off. Source: The Telegraph and subsequent trade press coverage, as discussed on episode 104.)

BPR schemes are sold on the inheritance tax angle. Two years of ownership and the assets fall outside the estate. It sounds clean. In practice, you are holding illiquid investments with punchy ongoing fees, targeting net returns that broadly keep pace with inflation, for clients who are likely to be elderly and who cannot absorb a significant loss. The tax tail wags the dog. It nearly always does.

We have never proactively recommended these schemes. None of us have. When you strip away the tax wrapper and look at what you are actually putting your client into, the case falls apart. A globally diversified equity portfolio, held for the same period, significantly outpaces inflation. The liquidity is superior. The simplicity is superior.

Alan put it plainly on the episode: if you are trying to deliver financial independence for your clients through the simplest, lowest-complexity, most liquid structure available, why would you add this? The answer, usually, is that the tax saving looks attractive in the moment and the long-term consequences are someone else's problem.

The PI renewal list has another use beyond compliance. It tells you something about how advisers who did recommend these products fare when they try to exit their businesses. Buyers look at the book. They see BPR, EIS, VCTs, structured products. They mark it down. They carve it out of the valuation. They load the warranties. The short-term revenue from recommending complex products carries a long-term cost that most advisers fail to calculate until it is too late.

Carl was candid about his own history. In the early 2000s in Ireland, he did almost everything on that list. EIIS schemes, property investments, the lot. He lost money personally on two of them. He described the process of cleaning up those messes as mental torture. In 2010, he drew a line. People told him he was leaving money on the table. He disagrees with that assessment now.

The principle underneath all of this is straightforward. If you are asking your clients to take a long-term view, your business has to take one too. That means laser focus on what you actually do well, and a willingness to say no to everything that falls outside it, regardless of how the fee looks in the short term.

Nick made a good point. He has heard very few good BPR stories from other advisers. Advisers talk. When something works, they say so. The silence around these products is its own kind of data.

The PI renewal list is a checklist for building a business you are proud of, one you can sell without caveats.

Avoid ticking those boxes. Sleep better.

Episode 104 covers all of this and more, including Carl's plans for transforming a 28-person advice team, Alan's thoughts on where AI is taking the profession, and the question every adviser should ask themselves about their own financial plan.

Watch the full episode here.

And you can listen to the audio here.

P.S. Carl also shared something he has never said publicly before about one of his own EIIS investments going wrong. He is saving the full story for the TRAP retreat. That alone might be worth the ticket.