Fears about new rules on how investment research is presented to retail clients has caused wealth manager Tilney to remove all investment trusts from its buy list of recommended funds on its Bestinvest fund platform.
Jason Hollands, managing director at Tilney, told FTAdviser: “ The rules around publishing research on listed securities have changed significantly recently and so investment trusts rated by our analysts have been withdrawn from the publicly available Bestinvest list while compliance look at this further.”
Investment trusts, unlike open-ended funds, are themselves equities listed on a stock exchange.
This means fund platforms usually treat the investment products the same way they treat shares, and Tilney believe from the regulatory point of view investment trusts must be treated in this way.
Mr Hollands "special care" is needed when highlighting listed securities, including investment trusts, as there is a very detailed and complicated analyst disclosure regime for actual ‘research’ recommendations, for example to buy or sell.
Tilney's Premier Selection is not seeking to provide such recommendations, he said, but the inclusion of trusts on the buy list is "being reviewed with the compliance team", and have been removed until a decision is made.
"The funds in our Premier Selection are those we believe are run by high quality managers, with sound investment processes but these should not be seen as either personal or trading recommendations, it’s a list provided to clients who can then make their own decisions on whether the funds suit them and timing," Mr Hollands said.
The funds on the Bestinvest buy list and other funds it rates can be viewed for free by anyone, not just customers who have an account with Bestivest, so an investor who has no commercial relationship with the company could read the recommendations.
The issue of investment trusts on platform buylists has been a long running sore for the industry.
Hargreaves Lansdown clients can buy investment trusts on the platform, but trusts never feature on its buy lists.
The company cited liquidity concerns as a reason for not putting trusts onto their highly watched Wealth 150 buylist.
Because investment trusts are listed vehicles they are of a fixed size, that is, the number of shares in issue is the market capilisation or value.
Hargreaves Lansdown’s concern is that placing a trust on its buy list would result in a significant amount of capital, probably more than £100m being deployed by its clients.
This would, in the view of the platform, create a potential problem of a lack of liquidity for its clients if Hargreaves Lansdown were later to remove a fund from the list and all its clients wanted to sell.
But Simon Fraser, chairman of the £4bn Foreign and Colonial investment trust said investment trusts can always provide extra liquidity by issuing new shares. He added a fund of £4bn in size invested in listed equities is likely to have plenty of liquidity.
Danny Cox, head of communications at Hargreaves Lansdown said: “HL is one of the largest brokers of investment trusts in the UK and we provide research, information and comment to help investors with their decisions.
"The marketing influence of HL does not sit comfortably with the underlying illiquidity of most investment trust's closed-ended structure. HL currently rarely promotes investment trusts and does not include them on our Wealth 150 specifically due to these liquidity and pricing issues.”
He said a key problem is that a recommendation that a trust is a good investment may be made due to the share price being at a certain level, but the share price would move significantly in the event of a recommendation, changing the investment case.
David.Thorpe@ft.com
