MM Intelligence: The AIC response

This article is part of
MM Intelligence: Investment Trusts

We have believed for some time that the RDR represents a major long-term opportunity for the investment company industry and, if the adviser views in this survey are representative of the adviser industry, we might even be right! It is encouraging that 46 per cent of advisers surveyed think they will increase their investment company advice in the next 12 months.

It is also reassuring, considering that we have trained more than 1,800 advisers in the past two years, that 78 per cent of the advisers surveyed are confident about advising on investment companies and 31 per cent of advisers are more confident about investment companies than this time last year.

It is even more heartening when we look at why advisers are using investment companies in their client portfolios. A third are using them because they believe investment companies are likely to deliver the best returns. It is clear that many have realised investment companies have a strong performance story to tell. Recent research of comparable investment company and open-ended sectors by Canaccord Genuity confirms this, with investment companies outperforming open-ended funds in 12 out of 16 sectors over 10 years. Also, nearly a quarter of advisers are using investment companies because they understand them better.

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Although this research indicates we are heading in the right direction, there is still a lot more work to do if more advisers are going to feel sufficiently confident to recommend investment companies. There are 9 per cent of advisers who are not at all confident about investment companies and 14 per cent who are only slightly confident. This autumn, we are running four seminars around the country, using case studies to illustrate how to use investment companies in client portfolios. We are also running online training sessions, as well as presenting at the IFP and PFS conferences.

The biggest concern which advisers have about investment companies is gearing, with 64 per cent of advisers mentioning this as an issue. Most investment companies only gear to a moderate amount (the industry average is currently 8 per cent) and some investment companies do not gear at all. However, we’ve taken on board feedback to improve our gearing data. We now illustrate gearing as a simple percentage and provide data on our website which shows what the current level is, how the company has managed gearing in the past and how it can be managed in the future.

The second biggest concern was the availability of investment companies through platforms, with 55 per cent of advisers raising this. Investment companies are not yet on the three biggest platforms, but this is a marked contrast to most other platforms, which have operated on a wrap basis and have included investment companies. At the end of July, the FCA published its thematic review for advisers on the RDR with a strong message that advisers will find it difficult to remain independent if they only have access to one platform. It is clear, having talked to advisers at our training sessions, that they have access to more than one platform, to provide coverage of all the retail investment products their clients might need, including investment companies.