Despite data showing increasing interest in closed-ended funds since the Retail Distribution Review came into effect, the reality is that an expected surge in sales has arguably failed to materialise.
In March the Association of Investment Companies reported a 67 per cent increase in adviser and wealth manager purchases of investment trusts for their clients in 2013, through the Transact, Nucleus, Ascentric, Raymond James Investment Services, Elevate and Novia platforms that offer them.
It said investment trust purchases on the platforms were £328.4m in 2013, compared to £196.6m in 2012 before the RDR was implemented. In the fourth quarter of 2013, investment trust sales via advisers reached a record high of £86m, up 70 per cent compared to the last quarter of 2012.
While the percentage increases are substantial, the share of the market remains small. For example, Investment Management Association data for the final quarter of 2013 show total sales of open-ended funds of close to £5.9bn.
There was speculation that the RDR would level the playing field for investment trusts, as advisers can no longer receive trail commission on new business from open-ended funds and independence rules force advisers to consider a wider universe of solutions.
So what has happened? Some say it is simply a lack of access: FTAdviser has previously reported that the big three of Cofunds, FundsNetwork and Skandia have not yet moved to allow investment trusts.
Ben Yearsley, Charles Stanley Direct’s head of investment research, suggested this could indeed be part of the issue, while he also cited costs that have shifted significantly since January 2013.
He said: “Most of the platforms don’t allow things like VCTs or investment trusts; it depends on who you’re using.
“I think a lot of people thought with RDR that investment trusts would be the most popular product out there and not really thinking through all the ramifications. Where investment trusts always used to be the cheapest player in town, suddenly most unit trusts under clean pricing were cheaper, so this year there’s been a trend in reduction of fees on investment trusts.”
The big platforms cite low adviser demand. Skandia’s latest adviser survey showed that on average only 7 per cent of advisers placed some client money in investment trusts, down from 10 per cent in the second quarter of 2012.
Tim Skelton-Smith, lead corporate communications manager, added that due to this limited demand, Skandia’s focus has been on developing fund based propositions, such as WealthSelect.
He said: “However, clearly there is some demand and we are looking at when we expand the range of investment options, but it is too early to confirm timescales.”
Smaller platforms that do offer trusts echo the AIC’s data showing rising interest, though from a low base and still substantially below closed-ended alternatives.
Hugo Thorman, Ascentric chairman, said that the main reason larger platforms do not offer investment trusts is to do with technology, as he cited growth in sales from £100m to £160m over the past year.
David Ferguson, Nucleus chief executive, added: “These assets continue to be recommended by Nucleus users in moderate but record volumes - we’d expect a continual uptick over the coming years.
“Those legacy platforms which are still unable to deliver a solution in this area seem to be doing little more than undermining the independence of their users.”
The most recent Finance Bill, which attained royal assent this month, made it possible for clients to purchase VCTs through a platform.
Jason Hollands, managing director for business development at BestInvest, told FTAdviser that last year brought an 8-year high for VCT fundraising at still just £393m. However, he said that some advisers who feel they are not specialists in this area will not advise clients on VCTs.
Mr Hollands said: “The other area of the market that may deter some advisers is the fact that these are not open-ended products, they are limited capacity offers, so they may not want to spend the time researching and doing the due diligence on these VCTs.”
Paul Latham, managing director at Octopus Investments, told FTAdviser that in the last tax year, the firm experienced a record level of VCT inflows, raising 56 per cent more funding into VCTs than in the previous 12 months.
Mr Latham added that the at-retirement reforms due next April should increase interest in VCTs as advisers and investors look at the alternative options available to them should they choose to draw down more of their pensions pots.
