Five-fold increase in investment trust adviser purchases since commission ban

Purchases of investment trusts in 2018, however, did fall slightly below previous levels.

Funds and Investment Trusts March 19, 2019 by Tom Bailey

Investment trusts remain almost as popular as ever among financial advisers, according to new research from the Association of Investment Companies (AIC). The trade body’s latest figures show that purchases by advisers reached a record £985 million in 2018, almost five times what they were in 2012.

This growth in popularity of investment trusts among advisers has soared since the introduction of the Retail Distribution Review (RDR), which came into force in 2012.

Prior to the RDR, advisers could receive commission on open-ended funds they recommended. The same did not apply to investment trusts. This, it is often alleged, created a bias among advisers to recommend funds. The introduction of RDR put a stop to this and ended the ability of advisers to earn commission fees when buying an open-ended find.

“Purchases of investment companies on adviser platforms are nearly five times higher than they were in 2012, the last year before RDR came into force,” notes Ian Sayers, chief executive of the AIC.

Purchases of investment trusts in 2018, however, did fall slightly below previous levels. In 2017 purchases were 2% higher, at £990 million.

This is partially the result of the  large sell-off in global markets last year, with volatility and fear leading to less buyers in general.

In terms of popular areas, there was increased interest among advisers in alternative assets such as property, infrastructure, private equity and debt. Many of these alternative assets are highly illiquid, meaning that they cannot be easily and quickly sold. Investment trusts are well suited for such assets. Unlike open-ended funds, their structure does not force them to sell holdings if investors jump ship.

The launch of Smithson Investment trust also went down positively with advisers. The brainchild of (but not managed by) Terry Smith, the trust raised £822 million at launch, becoming the largest investment trust IPO on record. The record was previously held by Woodford Patient Capital, which raised £800 million in 2015.

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