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Market bias, prohibitive costs and “sketchy knowledge”

3 July 2018

New research from the lang cat identifies barriers to investment company use on adviser platforms.

The report, We Have Trust Issues: Barriers to Using Investment Companies on Platforms, is available here

Though purchases of investment companies on adviser platforms reached nearly £1 billion in 2017, there remain considerable obstacles to wider adoption of the vehicles, according to a new report from the lang cat, the specialist platform consultancy.

An “inherent market bias against investment companies” takes many forms, the report claims, such as the march towards vertical integration, the influence of networks, and the outsourcing of investment decisions to discretionary fund managers (DFMs) that don’t use investment companies in their model portfolios.

The lang cat’s analysis of the cost structures of adviser platforms reveals another considerable barrier to wider uptake of investment companies. The majority of adviser platforms “remain hooked on the drug of unlimited percentage-based charging”, says the report, in contrast to many direct-to-consumer platforms where custody charges are capped or eliminated for investment company investors. When it comes to model portfolios, the report finds that there are many platforms where the cost of incorporating anything other than open-ended funds is “prohibitive”.

Finally, the report points to lingering misconceptions about investment companies among advisers as well as “sketchy knowledge”.

Nick Britton, Head of Training at the Association of Investment Companies (AIC), which commissioned the report, said: “The growth of platforms has done a lot to expand access to investment companies. However, this lang cat report shows that barriers still remain, especially when it comes to adviser platforms.

“From pricing to search functions and usability, more needs to be done before many platforms offer a level playing field for different fund types. However, it’s not all doom and gloom. The report also shows that if advisers want to include investment companies in portfolios, there are several platforms that make this both easy and cost-effective. The AIC has trained over 7,000 advisers since 2011 and we will continue to support advisers who want to understand investment companies better.”

Steve Nelson, Consulting Director at the lang cat, said: “Whilst adviser-led purchases of investment companies on platforms nearly hit the magical billion mark last year, with a clear upward trend, it is apparent that this could potentially be much more. An unrestricted investment choice should mean just that in forming suitable investments for a client. Yet, it feels like advisers are hindered by a combination of lack of access, market biases, cost and lack of information. That doesn’t feel like a great situation to us.”

Key findings from the report include:

  • Five years after RDR, 95% of assets on advised platforms are still in open-ended funds or cash.
  • In Q1 2018, the top 7 advised platforms accounted for 75% of assets under administration (AUA). Of this, 45% of assets were on platforms where there was no, or very limited access to investment companies.
  • Only 3 adviser platforms cap their custody charges and there is only 1 fixed fee platform. In contrast, investment company custody for over 15 mainstream D2C platforms is either fixed fee, has a low cap or carries no charges at all.
  • Ease of use was identified as the main barrier to using investment companies on platforms, according to the lang cat report, with 50% of advisers surveyed saying this was a factor.

The AIC offers free training on investment companies to advisers and wealth managers 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 19 major adviser platforms.


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  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 350 members and the industry has total assets of approximately £182 billion.
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