“Part of being an independent adviser”

New research from the lang cat, commissioned by the Association of Investment Companies (AIC), has revealed how financial advisers are overcoming barriers to using investment companies with clients.

The research, which includes detailed case studies of four independent financial advice firms, shows how advisers incorporate investment companies into their processes.

The research also includes a new report, You can do it: Overcoming the barriers to using investment companies on platforms, which explores the ways advisers are overcoming the challenges identified in the lang cat’s 2018 report for the AIC, We have trust issues, namely a market bias against investment companies, platform access and costs, and sketchy knowledge.

Taken as a whole, the lang cat’s latest research suggests that some of the commonly cited barriers to advisers using investment companies may not be as difficult as is sometimes thought, while a proper consideration of investment companies is seen as a must for truly independent advisers.

Investment companies and adviser independence

“Providing the choice of investing in an investment trust is part of being an independent adviser. We feel they should be offered or considered alongside open-ended funds.” – Colin Low, Kingsfleet Wealth

Researching investment companies

“Our research process isn’t hugely different… The standard tool we use is Morningstar, but we also use FE Trustnet… We tend to use independent tools because model portfolios on platforms ignore ETFs and investment trusts.” – Peter Adcock, Adcock Financial

Platform access

“There are so many options now for fully open-architecture platforms that enable us to hold pretty much anything we want.” – Simon Munday, Prosperity IFA

Discounts/premiums and gearing: barriers or opportunities?

“Elements such as gearing clearly offer the opportunity for performance to be stronger than their open-ended equivalent. There’s also the opportunity to buy something at a discount to the net asset value.” – Andy Parkes, Finance Shop

Tailwinds for investment companies

The report identifies a number of positive trends for investment companies. These include the growing level of investment company assets, the rise of platforms that are “champions of open-architecture investment” and the Product Intervention and Product Governance Sourcebook (PROD) sharpening the focus on a segmented approach to clients’ needs. The suspension of Woodford Equity Income is cited in the report as a development that “helped to kick off a meaningful conversation around some of the inherent sector biases towards collective funds.”

Nick Britton, Head of Intermediary Communications at the Association of Investment Companies (AIC), said: “Our previous research highlighted a number of barriers which stop advisers using investment companies more widely. This report shows that some advisers readily overcome these challenges, or even see them as opportunities. The report challenges several preconceptions about adviser use of investment companies, namely that there is a shortage of information available, they are too complex, or that gearing, discounts or liquidity present insurmountable obstacles.

“What’s clear is that advisers using investment companies consciously assemble the tools around them, such as platforms and information sources, to enable that inclusion. They don’t just accept the status quo.

“Investment companies’ strong performance record, income benefits and ability to offer exposure to a wider range of assets make them an attractive option for lots of investors. As the case studies show, investment companies can be suitable for a very wide range of clients and they should be considered on a level playing field along with open-ended options.”

Steve Nelson, Consulting Director at the lang cat, said: “Our previous work with the AIC shone a light on some of the barriers, perceived or otherwise, to adopting investment companies via the major UK direct-to-consumer and adviser platforms. That wasn’t just our view, it was clearly backed up by our various bits of research.

“When revisiting the topic, we were keen to speak to some high-quality adviser firms who are using investment companies as part of their client propositions. We were encouraged to see that some of these barriers may be easier to overcome than it may seem on the surface.”

The AIC offers free training on investment companies to financial advisers through face-to-face workshops and seminars, and its online training portal, Learning Zone. To access this training, advisers and wealth managers can register on the AIC’s website, where they can also access details of investment company availability and relevant charges on all major adviser platforms.

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Notes

1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 363 members and the industry has total assets of approximately £197 billion.
2. the lang cat is Leith’s leading platforms, pension and investment specialist offering marketing, PR and communication services within the retail long-term savings and investment markets.
3. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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