The RDR was supposed to herald a new era for investment trusts. With commission gone, investment trusts could finally compete on a level playing field.
However, a major stumbling block has been platform access. A number of the largest platforms still do not carry investment trusts, arguing that they see little demand among their clients.
This presents difficulties for advisers. Those who strive to be independent need to demonstrate that they are at least considering investment trusts. This means advisers are often forced to use a number of platforms to incorporate investment trust holdings. It is also a problem with white-labelling. A number of groups white label the Cofunds platform, but as yet it does not offer a share facility and therefore cannot trade investment trusts.
Ben Yearsley, head of investment research for Charles Stanley Direct, suggests a two-tier market is emerging. “Larger fund supermarkets such as Funds-
Network are not yet offering shares, but at the same time are offering very aggressive pricing on its clean-priced open-ended funds.”
Consumer-facing platforms, such as Barclays Stockbrokers and Hargreaves Lansdown, and open-architecture platforms, such as Novia, Nucleus and Transact, offer investment trusts, but here too there can be difficulties: Hargreaves Lansdown recently attracted condemnation for its attempts to introduce a 0.45 per cent charge for investment trusts, on top of a separate charge for holding shares. This was capped at £45, but the charging structure was eventually abandoned following criticism from clients of the group. Nevertheless, the debacle showed that trust buyers still hold sway in some parts.
There have been signs that platforms may be starting to concede. In March 2012, Fidelity FundsNetwork became the first of the fund supermarkets to confirm it would offer investment trusts. It already offered some of its own investment trusts and had built the functionality to cope.
However, last year Fidelity confirmed it had put plans on hold. It stated it was prioritising projects with greater adviser demand. At around the same time Cofunds announced that it was abandoning a pilot scheme started in 2012 with Barclays Stockbrokers to list investment trusts alongside other listed securities such as exchange traded funds (ETFs). The pilot had been launched with 10 adviser firms, but the group said it would now not proceed with a full service. Skandia says that its research shows demand for investment trusts remains relatively low. Its position is that it has no plans to offer investment trusts for the time being.
There is now a chicken and egg situation for trusts. The fund supermarkets will not offer investment trusts until they see demand from financial advisers, but groups such as the Association of Investment Companies (AIC) argues that there will be no demand until investment trusts appear on the platforms.
The problem appears to be technological rather than philosophical. Simon White, head of investment trusts at BlackRock, says that quoted equities, which may trade at many price points during a day, are more difficult to administer than open-ended funds with just one daily dealing point. So there needs to be a compelling business case to make the difficult and costly technical changes.
