Another advantage of an investment trust is the investment management fee. Historically IFAs were remunerated through the commission paid back to them by providers. Investment trusts have never paid these commissions. This means they often have been much cheaper than other equity-based products such as open-ended investment companies. With RDR removing this commission-paying structure, financial advisers’ customers will now pay for their investment as one fee, they will pay their adviser a separate fee, and they will pay the platform on which their investments are held a third fee. This levels the playing field and means financial advisers will be able to offer a whole-of-market range of products and investments. They are no longer incentivised to ignore investment trusts so, for the first time, investment trusts will become part of their offering.
Investment trusts offer a huge opportunity for both advisers and investors alike with 291 to choose from with total assets of more than £94bn (source: AIC as at 31 December 2012). The way to make the most of an income-focused investment trust is to choose a fund manager with a stock-picking approach who targets stocks offering capital appreciation as well as income.
All figures from the October 2012 Capita UK Dividend Monitor unless otherwise stated.
Alex Crooke is a fund manager of Henderson High Income Trust
Key points
In recent years investors have been forced into finding alternative sources of income.
Investment trusts work differently from Oeics in that they are a company in their own right with a fixed number of shares.
Another advantage of an investment trust is the investment management fee.
