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Letter: Investment companies should play a bigger role

I have enjoyed knowing Chris Gilchrist for a long time but there were a number of points in his article, “IT issues that need addressing” in the 21 November issue of Money Marketing that were misinformed.

We’re the first to admit that there’s a wide divergence in investment company charges, but many investment companies in the mainstream sectors have charges which are competitive with open ended funds and below 75bps.

Secondly, we believe the fairest way of comparing performance is to look at the share price of investment companies as these are the returns an investor receives.

Would advisers prefer that we ignore any discount fluctuations and the impact they have on investors’ returns? I doubt it but we do publish both NAV and share price figures so advisers can look at both figures.

On gearing, it’s a structural feature of investment companies – yes advisers should understand what impact it has on performance – we’ve been busy training on this and that’s why many companies explain this more fully in their report and accounts.

As for the independence of the board – well boards have been reducing their charges and this year ten investment companies have abolished their performance fee.

Fourth, the Association of Investment Companies is a trade association not a regulator. Our offshore members are well regulated and have to comply with company law, the listing rules and other regulations like our UK members.

For many offshore companies the closed ended structure is providing access to illiquid asset classes like property and infrastructure which are proving popular, with the current strong demand for income. There are also plenty of big well-known investment companies in the retail sectors.

Currently advisers’ clients make up less than 1 per cent of investment company shareholders, whereas institutions, wealth managers and direct investors all have significant holdings in investment companies. So finally we can agree with Chris – investment companies should have a bigger role in advisers’ portfolios.

Annabel Brodie-Smith

Communications director

The AIC

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Annabel

    I’m afraid you a batting on a very sticky wicket. As you know I have moaned about Investment Companies for a very long time, or more precisely their lamentable administration. If Chris is only half-right then allied to my points it is hardly any wonder that Investment Trusts don’t enjoy the success you seek to provide for them.

    Within the last hour I have come off the phone after speaking to Halifax re British Empire Secs. and The Share Centre re Caledonia.

    In the first case the application for £10k was initially sent on 22 October, but due to problems with their application forms the finally accepted application wasn’t sent until 31 October.

    In the second case (also for £10k) this was also sent on 22 October.

    In both cases client mandates were sent so that we could have information. Isn’t this stupid seeing as we submitted the applications in the first place?

    In neither case have we (to date) received any acknowledgement or paperwork advising account numbers, shares purchased etc.

    The Share Centre couldn’t find the paperwork when I rang today (29th Nov) I faxed copies and the finally found the originals and provided the information.

    The Halifax has yet to return my call.

    I can do better administration from my garden shed.

  2. PS

    Two and a half hours later and I get my call returned from the Halifax. They admit seeing my mandate, but they have lost it! (Evidently the deal has been done). I now have to submit a brand new mandate. The original was sent with the application so it must have taken some real skill to lose it!
    The new mandate has to be an original with a ‘wet’ signature as this is all they will accept. Without it I cannot have any information.

    Is this pathetic or what? Really this not a very unusual tale. Dealing with third party administrators on investment trusts has always been painful.

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