Investment trusts have seen significant growth, and their future prospects are often espoused by product providers and trade associations, but how do advisers feel about their potential?
Have the retail distribution review, retirement freedoms and other initiatives expected to boost investment trusts actually had an impact on how many clients ask for them, or how many advisers recommend them?
Francis Klonowski, principal of Leeds-based Klonowski and Co, is a keen, long-term advocate of the closed-ended investments. He has used them as the basis for portfolios since beginning as an independent adviser in 1991. He says his typical client’s portfolio is made up of between 50 and 75 per cent investment trusts, “The only reason they can’t take up 100 per cent is because they don’t have any fixed income funds,” he says.
He is also a regular winner at Money Management’s annual Financial Planner awards; as well as taking the overall award twice he has won the Investment Companies Planner category three times – in 2002, 2011 and 2014 – and been runner-up twice.
It is fair to say he knows about investment trusts.
His early adoption of a fee-based model has almost certainly made it easier to embrace the vehicles. Famously, the lack of commission paid on investment trusts was often cited as an obstacle to advisers recommending them in the days before the RDR, when they would instead rely on commission-paying, open-ended vehicles that often underperformed closed-ended funds.
Recalling those days, he says, “It was always interesting, whenever advisers or advisory firms said which investment trust they would use, it is amazing how often Foreign & Colonial and Witan were the names that were suggested; they were the only two that paid commission.”
Mr Klonowski say those were the “more commercial” investment trusts, which had a bit more marketing clout and would do seminars.
Asked why more didn’t pay commission, the adviser says simply, “Because they didn’t need to.”
He argues that they knew that their market was always the more specialised adviser and broker, “When you say how much do they differ from unit trusts, it’s because they’ve never had the big marketing budgets. They didn’t go out on roadshows or spend money on marketing and glossy advertising because they knew there were enough specialist people to buy the funds.”
“I always imagine investment trusts sitting in dusty old offices down the back streets in London, never meeting an IFA or a network salesman, but just looking after clients’ money and making it grow.”
Lack of availability
The lack of availability on some platforms is also frequently raised as an issue, but for Mr Klonowski, the biggest issue was always commission, “Even when platforms came along with the likes of Transact, I don’t think you saw any great increase because other excuses were used. And yet, if you were doing financial planning and you were charging fees properly as opposed to taking a percentage of assets, then they were the ideal vehicle.”
