Several leading wealth management firms have ceased recommending the Octopus Inheritance Tax Service (OITS), an investment scheme designed to provide inheritance tax relief by allocating investor funds to a portfolio of businesses. The decision comes amid growing concerns about the scheme’s fees, valuation methods, and recent financial performance.

St James’s Place, Fairstone Group, and Openwork Partnership have all withdrawn support for OITS, which is managed by Octopus Investments. The scheme pools investments from approximately 18,000 clients who purchase shares in Fern Trading, the holding company underlying OITS. St James’s Place and Fairstone Group withdrew their recommendations last year, while Openwork Partnership followed suit in May.

At the end of August, Octopus Investments temporarily suspended applications and redemptions for OITS, anticipating a pause of six to eight weeks. This freeze was attributed to ongoing exclusive negotiations by Fern Trading to acquire PlatformX Communications (PXC), the wholesale division of TalkTalk. Octopus stated that the pause would allow sufficient clarity to be established for a fair share valuation, which had become difficult during the transaction process.

Fern Trading comprises around 330 companies operating across various sectors, including renewable energy, broadband fibre infrastructure, housebuilding, and lending. Its value is determined by an internal share price, calculated in accordance with international private equity and venture capital valuation standards.

Despite posting losses exceeding £400 million, Octopus Investments has continued to generate substantial fees from the business, exceeding £100 million annually for the past two years. The fee structure charges a 1.85% management fee on the portfolio value up to £3 billion, with fees decreasing incrementally by 0.25 percentage points for every additional £500 million above that threshold.

In the most recent valuation, Fern Trading’s market value was estimated at £3.17 billion, even as its net assets declined by 12% to £2.16 billion over the fiscal year. This discrepancy has raised questions among financial advisers and investors about the appropriateness of the valuation and fee arrangements. One independent financial adviser described the fee structure as disconnected from the underlying asset performance, suggesting that shareholders were effectively bearing costs despite ongoing value erosion.

Kristy Barr, head of retail investments at Octopus Investments, acknowledged investor disappointment with OITS’s recent results. She attributed the challenges primarily to weaker performance and lower valuations within parts of the fibre portfolio. Barr outlined steps being taken to address these issues, including appointing new leadership, revising business strategies, and halting further investments in smaller fibre companies. She expressed confidence in the portfolio’s medium- to long-term potential and emphasized the company’s focus on enhancing performance.

Octopus Investments, led by Erin Platts, is part of the wider Octopus Group, which was co-founded in 2000 by Simon Rogerson, the current chief executive, along with Christopher Hulatt and Guy Myles. The group has previously attributed its losses partly to initial high operational costs, especially in the fibre segment, as well as certain one-off impairments.