Investment trusts and the struggle for shelf space

Trust providers still have to battle a number of misconceptions before advisers can truly understand the benefits of closed-ended structures, writes Ed Morse, head of investment trust business development at F&C Investments.

For some time now, the investment trust industry has been looking forward to the expected boost that the implementation of the Retail Distribution Review at the start of 2013 will provide.

As well as requiring advisers to achieve QCF Level 4 qualifications, the RDR also states that advisers who wish to remain independent under the new regime should consider the suitability of all investment products, not just the open-ended funds they have historically favoured.

The arguments are well-rehearsed: with open-ended funds no longer able to bundle adviser remuneration in with their charges, the investment trusts – which can be cheaper, often boast superior performance records and may offer access to a broader range of asset classes – will be natural beneficiaries.

But there is one major point (along with several minor ones) that has yet to be addressed before the closed-ended fund sector can really celebrate RDR as a success.

Analogy

Imagine that someone told you Waitrose own-brand baked beans tasted just as good and were several pence cheaper than the Heinz beans you have tended to buy. This is all well and good, but if you always shop in Tesco and your nearest Waitrose is in the next county, you are not going to change your buying habits in a hurry.

The supermarket analogy is not accidental: these days most advisers will probably use some sort of fund supermarket, wrap or platform to ease the administration of their clients’ portfolios, and one major wrinkle in the smooth implementation of RDR as regards investment trusts is the continued unavailability of trusts on some of the major platforms.

A snapshot at the start of 2012 suggests that none of the ‘big four’ platforms – Fidelity FundsNetwork, Cofunds, Skandia and Standard Life – yet has any investment trusts up and running. The news is not all bad, as most have plans to offer them at some point (Fidelity’s recent tie-up with Barclays Stockbrokers suggests sooner rather than later), though in at least one case this is not expected to be until after RDR comes into effect.

Market players

There are other players in the market – Transact, for instance, has always offered investment trusts, and the wraps offered by Ascentric, Nucleus and Adviser Choice all do so too, as well as plenty of proprietary systems used by big IFA firms. But the four market-leading platforms have grown enormously over the past decade and are now an integral part of many advisers’ businesses.