Mr Budden touches on what many believe to be the biggest factors in limiting adviser interest in investment trusts. Aegon and Quilter both intend to include trusts on their platforms in the future, but some say the industry is designed to favour open-ended funds and so trust take up will never really flourish.
Problem platforms
Earlier this year, a report from the Lang Cat consultancy, commissioned by the AIC, looked at the reasons why advisers have held back from investing in trusts. Platform access was one of the main issues, with a “structural” bias particularly prevalent in the advised space.
Advised platforms tend to focus on charging a percentage-based fee with no limit, in contrast to DIY platforms, which have a broader range of fee models. Generally speaking, it is more expensive to hold trusts on advised platforms than it is on DIY facilities.
The report says: “There are several adviser platforms where investment company trading charges can be eye-watering. Aegon charges £15 a go, Aviva has a £25 minimum and True Potential has a £14 minimum. Many platforms reduce trading charges for rebalancing, but there are many that don’t.
“Considering the majority of adviser-led business is carried out on a model portfolio basis, there are many platforms where the cost of incorporating anything other than open-ended funds is prohibitive.”
Unsurprisingly, cost was regularly cited by advisers as a reason for not using investment companies. But there was greater usage of the products on platforms that did not charge a percentage based on assets, or had lower trading costs. These include Alliance Trust Savings (now part of Interactive Investor), AJ Bell, Ascentric and Seven Investment Management. Platforms provided by firms with in-house dealing desks tended to provide better value when holding trusts, the report explains.
In total, the average platform cost for a portfolio built entirely of investment companies was 0.42 per cent, compared with 0.37 per cent for a funds portfolio. And of the relatively low proportion of advisers who do use trusts, only a fifth include them in model portfolios compared with the 40 per cent who buy them on an ad hoc basis.
Investment companies’ own charges have a role to play here, but boards are starting to flex their muscles on this front. Around 40 trusts have reduced charges in 2018, in keeping with figures seen in recent years, and performance fees are withering away.
Platform availability is another factor hindering usage. As mentioned earlier, some holdouts have committed to offering investment trusts, but action has been slow to materialise.
