Independent financial advisers in the UK admit they don’t know enough about investment trust, poll shows

News - Trusts

Written by Ray Clancy

Tuesday, 03 August 2010 08:55

Some 40% of independent financial advisors admit that their knowledge of investment trusts is not good enough.

The main reason they tend to avoid recommending investment trusts is because they don’t know enough about them, a survey from J.P. Morgan Asset Management has found.

A further 37% said it was due to their lack of availability on platforms, with 33% admitting it was because of a lack of commission or trail fees. This is despite the fact that just 9% of those polled said it was due to a lack of client interest in the investment vehicle.

‘This is an interesting result, particularly as the Retail Distribution Review specifically states that come 2012, financial advisers wishing to remain independent will need to demonstrate a whole-of-market knowledge,’ said Jasper Berens, Head of UK Retail Sales at J.P. Morgan Asset Management.

‘Also, with the introduction of fee based advice across the board from 2012, IFAs will no longer have to avoid investment trusts on a commission based remuneration basis. Investors are clearly expressing an interest in investment trusts but it is a concern that their IFAs do not have a sufficient understanding of the investment vehicle,’ he added.

As a result the company is launching a training and development initiative for IFAs. ‘It is essential that the post RDR adviser is able to demonstrate an understanding of the whole market in order to remain independent. The J.P. Morgan Asset Management Academy has consistently produced relevant and insightful courses and this one is no exception. In addition, it is free to our key partners and offers intermediaries valuable CPD credits,’ explained Berens.

End investors have traditionally found it difficult to gain access to investment trusts and this, coupled with the results of the latest poll, reinforces why they have historically played a small part in investor portfolios. This could be set to change as investment trust managers and leading industry bodies, such as the Association of Investment Companies, actively look to ensure investment trusts are included on fund platforms.

David Barron, head of Investment Trusts at J.P. Morgan Asset Management said that one of the characteristics of investment trusts is that they have a fixed capital thus meaning fund managers are not constrained by fund inflows and outflows. He said this allows an investment manager the opportunity to invest in more illiquid markets and take a longer term view when investing in stocks.

Another characteristic of investment trusts cited by Barron is the consistent income that can be provided for investors through the payment of dividends. Investment trusts can have a unique ability to retain up to fifteen percent of revenues in any one year which is held as reserves. This means that dividend paying investment trusts are able to build up reserves over a number of years to ensure dividends paid to investors remain consistent throughout all market cycles.

The results of a separate poll conducted earlier this year by J.P. Morgan Asset Management suggested that one in seven advisers would leave the industry post RDR. ‘If an adviser is to remain independent he or she must have a good understanding of the whole market so the result of this poll raises the question of who will be ready for the implementation of the RDR proposals in 2012. It is highly likely that adviser numbers will fall,’ said Berens.