Advisers lack confidence on investment trusts

Lack of understanding remains a huge barrier to holding investment trusts, fresh research shows.

A Lang Cat and Association of Investment Companies paper released today, titled “We Have Trust Issues”, looks at the main barriers of using investment trusts on platforms.

The findings show it is clear advisers are still not confident about using investment trusts within client portfolios.

A total of 95 per cent of all assets on advised platforms are in funds or cash, the report shows, despite a 46 per cent jump in adviser purchases of trusts within the past 12 months.

The Lang Cat asked advisers what are the main barriers to using investment trusts, and 50 per cent said that ease of use compared with mutual funds was the main issue.

Of the advisers surveyed, 36 per cent said availability on their chosen platform. This comes despite just two advised platforms not offering investment trusts – Cofunds and Old Mutual Wealth, which are both re-platforming this year.

The paper also looks at the average platform price for a £50,000 investment in 100 per cent investment companies on direct to consumer and advised platforms (see below).

The cost discrepancy, while low, is still clearly an issue for advisers, with 24 per cent of advisers claiming the cost of trading is a barrier.

100% in investment trusts – D2C 0.24%
100% in funds – D2C 0.31%
100% in investment trusts – advised business 0.42%
100% in funds – advised 0.37%
Source: The Lang Cat

There are still many advisers who are not confident in knowledge surrounding trusts; 57 per cent of advisers are discouraged from recommending them because of their lack of knowledge, and 36 per cent because of perceived complexity.

Lang Cat consulting director Steve Nelson says: “Many advisers we speak to who recommend investment trusts state explicitly that platform choice is driven by a need to rationalise and simplify the charges that their clients would incur.”

Nelson says: “For that reason, it’s no surprise that investment company usage is higher on those platforms that take an asset-neutral – or close to asset-neutral – approach, such as Alliance Trust Savings, AJ Bell, Ascentric and 7IM.”

He adds: “We’re not surprised by these findings. Considering that 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.”



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Yet more proof (as if any were needed) that far too few ‘advisers’ have the first clue when it comes to investments.

    As far as the larger outfits are concerned they make more money out of OEICs than ITs. Amazingly I discovered that SJP doesn’t even use the Rothschild IT – RIT! That’s what vertical integration means. We make a killing on the fund and are prepared to lose a bit on the drones flogging the product.

    Poor clients (of large and small advice firms who don’t use ITs). One could weep.

    • Trevor Harrington 3rd July 2018 at 1:58 pm

      Afternoon Harry,

      Title – “Advisers lack confidence on investment trusts”.

      Rejoinder – “Investment Trusts lack the stability of Unit Trusts”.

      (They also lack the facility of Adviser Charging).

      By definition, Investment Trust “share prices” move from premium to discount, and back again, which gives them an element of volatility which the Adviser / Personal Investment Manager can well do without.

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