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Adviser Fund Index

The world of closed-ended funds may not be all glitz and glamour but the retail distribution review could push it towards centre stage.

A key part of the RDR is the requirement that advisers will have to have a broader range of investment options to remain independent.

In light of this, there is an argument that the restrictions placed on Adviser Fund Index portfolios that exclude direct closed-ended fund allocation should be subject to a review for them to more accurately reflect the portfolio advice given by panellists to clients.

“I suppose the remit should be widened if people believe investment trusts are the best things for their clients,” says Beckett Financial Services portfolio manager and AFI panellist Sam Sibley. “Many of my peers around the East Anglia region already use closed-ended funds in their own Oeic products.”

According to the Association of Investment Companies, assets under management in British-domiciled investment companies amounted to £60.5bn at the end of February. This appears relatively modest against the Investment Management Association figure of £484.7bn held in open-ended funds.

Moreover, the addition of 321 extra products into a market that already consists of 2,418 onshore and 596 offshore open-ended funds puts further strain on advisers and some panellists feel it would be superfluous to the AFI.

“Should investment trusts be brought into the AFI? To keep my answer simple, no,” says Chelsea Financial Services managing director Darius McDermott. “The AFI has enough elig-ible funds to choose from. The RDR is a regulatory framework and should have no effect on the AFI portfolios.”

The dilemma is whether continually increasing the range of products available necessarily increases the quality of the service for investors. This, after all, is the primary aim of the RDR.

Although it can be argued that advisers are currently offered a rich choice of products from which to build their AFI portfolios, the addition of investment trusts could have some additional benefits.

“You could argue that if you can buy investment trusts at a large discount you can get an extra kicker if the discount narrows,” says Sibley. “I think once the RDR comes in, advisers will have to at least be conversant with closed-ended funds.”

McDermott, however, says that investors looking to take advantage of the structure of closed-ended products can gain exposure without having to directly invest in them through open-ended funds of investment trusts.

From the responses of panellists, it appears that advisers are not expecting the imminent arrival of investment trusts into the AFI. What does appear to be the case, however, is that there is a growing impression that the RDR will herald significant changes. Many advisers are readying themselves for the adjustments this will entail but the way the new regulations will shape the asset management industry and the manner in which it will be enforced seem very much open for debate.

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