The investment-trust industry, which has long been the poor relation of open-ended funds such as unit trusts, is rubbing its hands with glee at the prospect of the retail distribution review. The regulatory shake-up of financial advice, which takes effect on 1 January, will ban providers from paying commissions to advisers who recommend their products to clients. Investment trusts, as quoted companies, have never been able to do this and blame commission bias for the fact financial advisers neglected the sector in favour of open-ended funds.
There is, however, a flaw in the theory that RDR will prompt a major return to favour for investment trusts. A number of intermediaries are warning that many funds are not liquid enough for them to be able to deal in the quantities they are used to trading – and that they may have to steer clear for this reason. A new report from the Association of Investment Companies, the investment trust trade body, warns that its members will have to deal with this issue – particularly the industry's many small, specialist trusts where liquidity is more likely to be an issue. "Most self-directed investors and IFAs will have little difficulty getting the shares they want," says AIC director-general Ian Sayers. "For institutions and wealth managers, which are dealing in much larger volumes, the picture may be different."