So today you will be pleased to know that I am not pulling apart the independent versus restricted argument, or talking about poor sales practices. Today, I just want to focus on the impact (for the investor) of headlines about a certain type of investment.
Basically, I hate headlines that pronounce the news that there are “cheap investment trusts”. Before you rush in waving “whole of market regulations” can I just mention that I have nothing against investment trusts, in fact I often include them in portfolios.
The issue with them is that their attractiveness is ever changing (discounts/premiums/gearing to name but a few) and these can have a considerable impact on whether the product is still worthy of consideration. Yet there are many people, without an adviser, who make their own investment decisions and take these headlines to be both permanent and applicable in all cases.
A trust may well be a suitable home and have a discount of more than 10 per cent, but you then have people who invest monthly and therefore have the issue of perhaps their first month’s investment going in at a 10 per cent discount but then shortly after and for the remainder of the years they invest, the trust is at a premium. Does the investor benefit from the headline here? I would say no.
Then there is the lump-sum investor, who sees the headline, decides to act and gathers their cash ready to invest by liquidating their 7-day or 30-day notice account. By the time the investor has literally received the cash into their account ready to make the transaction; the discount could again have disappeared and be replaced by a premium. Does the investor benefit from the headline here? Again, I would say no.
So can I just ask the headline providers to consider that while the attractions of many investments are ever changing, the merits of investment trusts are particularly susceptible to this. I realise that it is a case of buyer beware and we would hope that more research precedes any investment, however the reality is not always so clear cut.
Philippa Gee is managing director at Philippa Gee Wealth Management