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Time to consider investment trusts

Investment trusts need to take their message to advisers

One segment of the financial services market is wondering whether its time has now finally come.

The investment trust industry has been in this situation before but has managed to snatch defeat from the jaws of victory.

The split-cap debacle brought large parts of their industry to its knees. But, splits aside, why is it that investment trusts are not recommended as frequently as unit trusts and insurance bonds? Can it really be because they tend not to pay commiss-ion, unlike insurance funds and unit trusts? If that is the case, it is a damning indictment of the adviser community.

Now traditional barriers to using investment trusts are about to fall, with the RDR offering a regulatory leg-up. Witness the abolition of commission and a requirement for independent advisers to review all investment options.

To rely on regulatory changes alone would be foolish. Just out of interest, when was the last time you were contacted by an investment trust provider? They must engage more with advisers and start promoting trusts.

More education would be a good start. And I do not mean a series of dry presentations about how investment trusts work. What advisers need are examples of practical applications, alongside knowledge of the strengths and weaknesses of investment trusts compared with the alternatives.

How about explaining how the risks of gearing compare with the risks of derivatives within Ucits III funds? Or try showing how managers are insulated from the day-to-day buy and sell decisions of their investors. Or what about showing how discounts and premiums can work to an investor’s advantage?

Investors are increasingly forming the opinion they can self-manage their investments and in the world of unit trusts there are plenty of services they can turn to. Mark Dampier’s Wealth 150, the Chelsea Leaders and Fidelity’s Select List are ample proof. Getting more clued up about investment trusts would enable advisers to create some additional space between them and the direct- to-consumer platforms.

I do not mean that advisers should learn about investment trusts simply to gain a market-ing advantage. I believe trusts are an appropriate choice for many investors and they have been ignored for too long.

Regardless of whether you are an adviser with an active investment management strategy or your approach is more passive, investment trusts can have a part to play in client portfolios. They offer a combination of low costs and a potential investment kick through narrowing discounts.

So come on, investment trust providers, where are you? The conditions will never be this good again.

Dennis Hall is managing director of Yellowtail Financial Planning


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

  1. “Getting more clued up about investment trusts would enable advisers to create some additional space between them and the direct- to-consumer platforms.”

    Interesting that you seem to feel the need to “apologize” in the next paragraph.

    From a commercial point of view seeking to promote something that requires advice and justifies fee makes a good deal of sense.

  2. I am no longer in the industry but do follow it still. I always found investment trusts a little complicated. So if I did then I am sure many clients would also. The article talks about education…well here I am in the Asia and the other day a retired police officer was telling me that her cautious investment with Lloyds TSB had returned 24% in the first 12 months! Yes…some educating required!

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