The RDR was supposed to bring about a revolution in financial advisers’ treatment of investment trusts.
The investment case for the closed-ended vehicles had always been strong, with regular research showing investment trusts outperforming their open-ended unit trust counterparts. But equally, advisers had always shunned them, often citing a number of technical reasons but rarely mentioning the increasingly elephantine issue of their lack of commission.
In this, the first of what we hope to make a regular series, Money Management examines adviser attitudes toward investment trusts to see whether there has been any shift. We wanted to find out what was driving any change in attitude or, if there was no change, what was holding it back.
We emailed subscribers with a link to a very brief questionnaire. Anonymous responses gave us an overview of attitudes towards investment companies, their accessibility, simplicity, consumer understanding and so on.
Charts 1-3 show the results. The first question, illustrated in Chart 1, asked simply what percentage of each adviser’s investment business was currently constituted of investment trusts. The spread was, perhaps not surprisingly, weighted towards the lower end, with the overwhelming majority saying they accounted for less than 20 per cent. One in 10 did estimate the total at more than 40 per cent, though, which seems high.
These numbers are largely meaningless without the context provided by our second question though, which asked how the volume of investment trust business has changed since the RDR’s implementation.
Chart 2 shows positive figures which, while not an overwhelming endorsement, are more in line with the pre-RDR forecasts. A handful of advisers had seen a decrease but about 45 per cent in total had seen either a slight or significant increase.
When asked whether they anticipated a further rise or fall over the coming year (Chart 3), the split was roughly the same although there was a noticeable convergence towards the middle. Again a handful - about 8 per cent in total – predict a continued drop, but the majority of these foresaw only a slight fall.
Similarly the number that predicted an increase mirrored the 45 per cent that reported seeing a rise already, but where the reported rises were almost as likely to be “significant” as “slight”, predictions for the future were much more likely to be modest.
When addressing adviser understanding of the vehicles, the numbers were mostly positive. Exactly half of advisers described themselves as “reasonably confident”, while more than a quarter (28 per cent) were “extremely confident” in advising on investment trusts.
That 9 per cent said they were “not at all confident” should cause some concern. It is a small but not insignificant proportion.
For context, we also asked whether respondents felt more or less confident than at this time last year. Almost two thirds reported no change and the majority of the remainder – 22 per cent – were slightly more confident. There was 2 per cent that said that they were “much less confident”. Possibly they have been overwhelmed and intimidated by an increased coverage of the products and only just become aware of how little they know.
