After investment trust managers berate platforms for dragging their heels, Old Mutual has said it expects to make trusts available next year.
Speaking to FTAdviser, James Henderson, who manages several investment trusts including Lowland Investment Company, suggested it was a concern that major platforms still do not offer close-ended funds.
He said, however, that those managing investment trusts need to “keep telling the story” to encourage demand in the IFA market.
Late last year, Fidelity’s FundsNetwork added over 50 investment trusts and extended the range of exchange-traded funds available on its platform.
However, when this news emerged in November two of the largest fund supermarkets - Cofunds and Old Mutual - said they had no immediate plans to follow in the footsteps of FundsNetwork.
Some platforms have argued there is a lack of adviser demand, which Sarah Gibbons-Cook, investment trust investor relations manager at Henderson, said is “a little bit short sighted”.
“If people can’t buy them then how is that demand ever going to increase in the first place?” she queried during a roundtable event.
She said Fidelity has taken a “fantastic move forward”, adding it was just a starting point.
“However, some platforms are not quite there yet; it is a little bit like a cart-before-the-horse sort of scenario. Demand is coming through very slowly and gradually.”
Despite seeing demand in the consumer space, Ms Gibbons-Cook said it is only the professional IFA market where they are putting up barriers, also citing advisers’ lack of knowledge on investment trusts as a problem.
“It is frustrating but it is not a surprise that it is not coming through as quickly and as fast as it would do. There is an awful lot to consider for the IFAs, and for some it means changing their business structures.
“It is a massive learning curve for IFAs,” she said, suggesting some are struggling to keep up with the raft of regulatory changes. “You’ve got to sympathise with advisers, as well as be a little bit frustrated with them.”
James Budden, marketing director at Baillie Gifford, said platforms failing to add investment trusts is “very disappointing”.
He said the Retail Distribution Review took away the barrier of commission, but this has now been replaced by distribution bias due to the restricted availability of investment trusts on platforms.
Mr Budden said: “Platforms argue that customers are not asking for investment trusts, but it is a Catch-22 situation – of course they are not asking because they are not offering.”
Mr Budden said if Fidelity’s offering is successful then the other platforms might take notice, but added that he expects this will be “a long time coming”.
“It is a pity because IFAs should be giving their clients a holistic view of what’s on offer and recommending the best funds regardless of structure.
“If an adviser’s purchasing power is only limited to open-ended funds, then they are clearly not in the position to do that.”
The marketing director suggested some advisers are suspicious of investment trusts, possibly due to the discount volatility or the perception that they are more complicated than open-ended funds, but argued it is “not much of an excuse” because investment professionals should know the market.
When FTAdviser asked Old Mutual when it would add investment trusts to the platform, a spokesman from the firm said it expects to make the move next year.
He said: “While we continue to experience low levels of demand to provide access to investment trusts, we recognise that there are a few advisers who would appreciate the additional functionality.
“We therefore expect to deliver access as part of our significant project to update our platform technology, which we are undertaking in partnership with IFDS.”
A spokesman for Cofunds also said demand for investment trusts remains low, pointing out that less than 3 per cent of the platform’s assets under administration is typically through that type of investment.
“But we recognise the importance of more esoteric investment solutions in particular circumstances. Therefore we continue to explore options in how to provide this service but have higher priority projects at the current time so can’t confirm any timescales just yet.”
Frances Kemp, IFA at Norwich-based Nurture Financial Planning, said clients have become much more price sensitive following the financial market’s move towards fee-based models.
“This means where possible a financial adviser will try to streamline their processes as much as possible, and that inevitably means using a platform.
“So if the platform doesn’t make investment trusts available then the likelihood is IFAs are not going to use them. They are not going to go out of their way.”
She said using investment trusts outside of the platform means it is harder to get an overall picture plus contracts outside of platforms are also much more expensive.
“Ultimately the clients are then paying for that and you have got to justify that additional cost. Usually the only way to justify additional cost is normally through enhanced performance, and we go back to that situation where we have got a lack of comparable research to do that.”
katherine.denham@ft.com
