When the FSA’s plans to ban adviser commission were finalised, the investment trust world became excited. For years, open-ended funds (Oeics and unit trusts) have dominated the investment market and are the first choice for advisers when they build portfolios for clients.
One reason is their sheer ubiquity – the UK open-ended fund market is worth about £600bn compared to just £90bn for investment trusts – but another is the fact that open-ended funds paid a commission to advisers who sold them, while investment trusts, as shares traded on the stock exchange, did not.
But now the playing field has been made more level, if not completely, and the investment trust world is anticipating rekindled interest in the sector.
For the most part, investment trusts have been the preserve of discretionary managers, private investors and institutions over the years, while many advisers have simply not recommended them. The result is that some are more than likely to have questions about how to use them, when to invest and what to look out for when making a recommendation.
RDR opportunity
It has been said the post-RDR world will be one of growth for investment trusts as advisers cast their nets wider when constructing client portfolios. James Budden, director of retail marketing and distribution at Baillie Gifford, says the new regulations have provided an opportunity for both fund managers and advisers. “The need for advisers to look at the whole of the market across the fund space will hopefully help them see the merits of investment trusts,” Mr Budden says.
But the new regime has only just begun and it is too early to say just how much more frequently investment trusts will feature in adviser recommendations, says James Saunders Watson, head of sales and marketing for investment trusts at JP Morgan Asset Management. “It’s still really early days and is a lot like the worries about the Y2K bug,” he says.
However, he says the overall appetite for investment trusts is significant, with demand from smaller private investors, large wealth management firms like Brewin Dolphin and Brooks MacDonald, and advisers who have begun to take an interest in the sector.
Mr Saunders Watson says the feeling is investment trusts are a complement to other investments rather than a replacement or alternative, offering access to assets that might not be available through open-ended funds or are best held through a closed-ended fund, such as commercial property, private equity and infrastructure.
