Investment trusts on platforms

A view from David Prosser, former Business Editor of The Independent, Personal Finance Editor of the Daily Express, and Deputy Editor of Money Observer magazine.

Price wars can be good news for consumers, but it generally pays to tread carefully. As many people know from bitter experience, the reality of a so-called price war –whatever the industry – doesn’t always match the hype.

So it is with the intense competition we have seen between fund supermarkets over the past few weeks. These investment platforms are all overhauling their charging structures ahead of new regulation that comes into force in April – the result is that some fees have come down. However, not all charges are falling. And whether platform investors will be better off after this overhaul depends who they’re with and what investments they hold.

For investors in closed-ended funds, these are especially pressing questions. For one thing, most of the publicity generated as the platforms have unveiled their new charges over the past month has centred on charges for holding open-ended funds rather than investment trusts. A platform making headlines for cutting fees may be doing nothing of the kind when it comes to charges for buying, selling and holding investment trusts.

In fact, many platforms have completely different charging structures for closed-ended funds. In itself, that’s not unreasonable. The way in which investors buy and sell investment trusts, by trading shares, is different to the mechanics of investing in an open-ended fund, which is why the charges are different.

However, if closed-ended funds tend to be your investment of choice – and there are good arguments for this, given their tendency to outperform their open-ended rivals – it’s crucial that you choose a platform on the basis of its investment trust charges, rather than being swayed by a cheap deal on fees you won’t actually be paying.

The first point to make here is that not all the big platforms offer access to investment trusts. That’s disappointing given that demand is rising on those platforms where closed-ended funds are available – AIC research last year suggested a 66 per cent increase in sales of investment trusts on those platforms that do offer them – but it’s a fact of life for now. If you want access to investment trusts as well as open-ended funds, make sure you’re dealing with a platform that offers both.

After that, it’s a question of finding the best deal on fees – while also weighing up the additional services that many platforms offer, from performance measurement tools to fund research facilities.

It is likely to be some time before the picture is absolutely clear. As the new regulation doesn’t come into effect until April, some platforms are only just getting round to finalising their charges.

Also, there is still time for providers to change their minds. For example, Hargreaves Lansdown, one of the biggest platforms, has just dropped plans for an additional 0.45 per cent charge for holding investment trusts amid complaints from many of its customers. Whether the charge was excessive is a moot point – but many customers clearly didn’t like it and Hargreaves Lansdown has now changed tack.

There are likely to be more of these changes over the next couple of months and investors will need to do their research in order to get the best possible deal.

Equally, however, don’t be put off. For investors who know what they want, these online platforms provide an excellent route into the closed-ended sector and provide a low-cost, convenient way to maintain a portfolio. It’s worth taking the time to get to grips with what’s on offer.