Holding out too long may well backfire

The RDR’s ban on commission – which has tended to be paid by open-ended funds by default but rarely paid by trusts – and the requirement for advisers to consider the whole of market for investments if they want to retain their independent tag in theory both help put trusts in the mainstream.

But, three months into the RDR year, the effects of this are yet to be detected, with investment trusts still conspicuously absent from the three big investment platforms – Cofunds, Skandia and FundsNetwork – and failing to display an uptick in demand. So, exactly how much of an effect has the RDR really had for trusts?

The industry saw its assets under management pass the £100bn mark on January 31, to £101.1bn across 394 investment companies, although the AIC notes this is more to do with the strong performance of the trusts and rising markets than an increase in investor inflows.

Recent research conducted on behalf of the AIC indicates more advisers are looking to increase their allocation to investment companies, with 74 per cent considering it in the next six months to three years, although the main concerns for advisers are liquidity, gearing and lack of availability on the three biggest platforms.

The research notes the top two preferences for purchasing investment companies was through platforms and then wraps, but 34 per cent of the advisers surveyed claimed the lack of investment trusts on the platform they use is a barrier for them.

Annabel Brodie-Smith, communications director at the AIC, says: “One area where progress has been slower than we’d have liked is the take up of investment companies on the three biggest adviser platforms. The fact that investment companies are not present on these platforms yet is a marked contrast to practically all the other platforms which have operated on a wrap basis and have included investment companies.”

FundsNetwork told Investment Adviser in February that plans to host investment trusts on the platform had been shelved due to a lack of demand from advisers. The firm states: “We have every intention of launching investment trusts on the platform, but felt it important to share the date uncertainty with the industry and our advisers. We certainly don’t believe that this makes us a restricted platform. Advisers, both independent and restricted, can still continue to use FundsNetwork alongside alternative platforms that they may use for business.”

Ms Brodie-Smith adds: “The FSA guidance on ‘independence’ clearly states that non-availability of a suitable investment on a platform is not an excuse not to purchase for a client. It’s also very clear, having talked to the advisers that are attending AIC training, that many advisers are using multiple platforms, including the ones that have investment companies on them, to meet the various needs of their clients. They use a couple of platforms to neatly resolve this issue. So, of course, we’d like to encourage all platforms to put investment companies up, but in practice advisers are looking at the whole investment market and are using multiple platforms to be able to access investment companies.”

Simon Cordery, head of investor relations and business development for investment trusts at F&C Investments, points out that little has changed in three months, and suggests it could take at least a year for the RDR to filter down to what it means to advisers and how many will remain independent and how many will become restricted. He adds: “It was never going to be an overnight sensation for the investment trust industry, and I think that to expect advisers to change the habits of a career-time is really quite ambitious. Frankly, I think it is going to take a while.”

Mr Cordery acknowledges a degree of frustration within the investment trust community that the big three platforms do not offer the products, but warns this doesn’t mean advisers are “off the hook, as there are a plethora of routes to market”.

He highlights the growing use of execution-only platforms, such as Hargreaves Lansdown, and wrap platform providers, such as Transact.

With those advisers who want to remain independent looking more closely at the investment options available to them, and also the ways to access them, they may decide using more than one platform is too much trouble. Also, if they have to choose just one, it would be more likely they would choose something that gives them all the options. So, the big three may find that waiting too long to offer a whole-market option could backfire.

Nyree Stewart is deputy features editor at Investment Adviser