Investment companies presence on platforms

View AIC Panel Debate  - Investment companies on platforms 

There’s no doubt that advisers’ interest in investment companies is increasing.  Last year we trained over 800 advisers on investment companies and this year we have already trained over 1,000, with training requests still flooding in. We are about to participate in investment seminars around the country, including the IFP conference and the PFS conference. However, we believe it will take time before the investment company industry experiences the full impact of RDR.

One area which is perceived as a barrier by both advisers and the media is investment companies’ presence on platforms. This is repeated in a recent report by the investment company analysts, Winterflood, on the impact of RDR, “In terms of demand, it is still too early to tell…We believe that the key breakthrough will be the point at which investment trusts are included on the major platforms.” Of course, as the trade body representing investment companies, we want to see investment companies offered as widely as possible.  But I think it is easy to overplay the significance of this.

Investment companies are not yet on the three biggest platforms, but this is a marked contrast to practically all the other platforms, which have operated on a wrap basis and have included investment companies. Platforms like Transact have embraced investment companies from their launch, participating in a series of adviser road shows with the AIC when they first set up in the UK. Transact, Ascentric and Raymond James all participated in our adviser seminars last year and are active supporters of the industry.

The regulator’s guidance on “Independence” clearly states that non-availability of a suitable investment on a platform is not an excuse not to purchase for a client. So, if a platform does not offer investment companies, and an investment company is the best option for a particular client, then an adviser has to find a way to purchase it (for example, by using another platform).

In addition, at the end of July the FCA published their Thematic Review on how advice firms are implementing the RDR. In this, the FCA highlighted that an adviser firm was not acting independently, as they were directing 98% of their business through one platform and confirmed to its clients at a very early stage in the initial meeting that the advice would include using this platform.  So it’s a strong message from the FCA that advisers will find it difficult to remain independent if they only have access to one platform, a position which must be even harder, if not impossible, if that platform does not offer all suitable retail investment products.

It’s clear having talked to advisers at our training sessions that advisers have access to more than one platform to provide the coverage of all the retail investment products their clients might need. So, if the adviser is able to buy an investment company for their clients through one platform, then it doesn’t matter as much that the other platform that they use does not offer investment companies.  Advisers are using multiple platforms to meet the various needs of their clients.

Of course, change is afoot with the FCA having clarified the pricing structure of platforms, so that they will have to be paid for explicitly by the customer rather than the product provider, with rebates to consumers on new business being banned from April next year, and ‘legacy’ rebates ending by 2016. And with commission being a thing of the past, customers will now see exactly what they are paying for advice, the platform and the fund. Investment companies, which are restricted in paying platform charges and commission, will be able to compete much more on their own merits.

RDR remains a long-term opportunity for the investment company sector, one which is still only in a transitional phase.  However, we are very much encouraged by advisers’ increased interest in the investment company industry. Of course we’d like to see all platforms offer investment companies but the significance of this should not be overestimated. The advisers we meet are looking to add value to their clients’ portfolios via investment companies and they are getting access to them via the many wrap platforms. It’s an important point and explains why this month we have decided to talk to some of the leading wrap providers to gain their views on investment companies’ role in the platform market.