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.
Mr Britton adds: “Platform availability remains an issue for investment companies on a couple of platforms, and there are other barriers to investment company use. [But] several platforms offer an easy and cost-effective solution to advisers.”
Vertical integration
The report also says advisers feel investment trusts lack the “ease-of-use” factor present for open-ended funds. On top of this, selection and risk-profiling tools often class trusts as higher-risk assets, given share prices are susceptible to market movements.
Smaller advisers tend to have more interest in the sector: some networks do not permit their members to buy trusts. A related headwind is the growing prevalence of vertically integrated businesses. While RDR helped to boost trusts popularity by removing the commission bias, it also helped to create the very industry structure that inherently favours open-ended funds.
The report says: “More than half of the main providers, platforms, consolidators and advice groups are integrated with at least three of the four elements of the value chain – advice, platform/product, investment solution and underlying funds. We’re back in a place where distribution, products, services and investment increasingly flow from the same sources.
