‘Back to the Dark Ages’: Industry calls for FCA consultation amid trust test-taking woes

Platforms requiring retail investors to undertake knowledge tests before buying certain trusts is bruising the already-ailing sector

A crash test dummy sprawled in an akward position. Shot on a blue background and a sharop spotlight.


Professional investors have urged the FCA for a consultation on misinterpreted regulation regarding ‘complex investment products’ by platforms, following fears that mandatory ‘test taking’ before buying into some investment trusts is dealing another blow to the already-ailing sector.

They add that hampering the democratisation of investing through reducing retail access to real assets – which use investment trusts as vehicles for liquidity – could have negative consequences for both the UK stockmarket and the UK economy, warning that test-taking suggests the industry will go “back to the dark ages” of having to use a financial adviser before executing any trade.

Some DIY platforms in the UK – although not all of them – profess that regulation prohibits them from selling shares in certain alternative and specialist investment trusts without requiring investors to take a knowledge test. This is investment trust-specific, and is not required in order to invest in any other main market-listed company or AIM stock. Platforms known to enforce this include Hargreaves Lansdown, AJ Bell and Barclays Smart Investor.

The trusts affected vary from platform to platform, with some being determined as complex vehicles by the platforms while others are branded ‘complex’ by the trusts themselves.

See also: House of Lords criticises FCA’s application of cost disclosure rules for investment trusts

A spokesperson for AJ Bell tells Portfolio Adviser: “It is correct that our investors have to take a test to invest in complex instruments. It only takes them a couple of minutes, so it isn’t a major hurdle for those who want to invest in these assets.

“It is a regulatory requirement for us and something we’d keep under review were the regulations to change.” The spokesperson added that the regulatory requirements fall under Mifid II, EU regulation first introduced in the UK in 2014.

However, not every platform requires test-taking before buying certain trusts, which calls into question the regulatory nature of the tests. While this is because some simply don’t offer specialist trusts, others cite ‘choice’ and ‘freedom’ as reasons to allow investors to buy products without test-taking.

A spokesperson for Bestinvest says: “We provide access to an extensive range of investments trusts and investment companies on Bestinvest and we also include a number on ‘The Best Funds List’, our list of rated funds, ETFs and trusts, chosen by our research teams.

“We believe in giving our clients choice and the freedom to make investment decisions that align with their attitude to risk and financial goals. Choosing which investment trusts they want to invest in should be their decision and not ours.”

When asked about Mifid, they concede that the regulatory environment “has evolved in recent years”, in conjunction with the recent rollout of Consumer Duty – a standard introduced by the FCA last year which aims to protect consumers.

“This is why investment companies need to be flagged as suitable for retail investors, be made accessible and provide key information documents under the Priips regulations.”

Meanwhile, Fidelity chooses not to offer ‘complex investments’ through its platform at all, having taken the decision to remove certain trusts from its investable universe altogether – a list of which is published on its website. These include MIGO Opportunities, AVI Global, RIT Capital Partners and CT Global Managed Portfolio Income.

A spokesperson tells Portfolio Adviser: “Investments that are considered ‘complex’ by the regulator trigger a requirement for non-advised investors to undertake an appropriateness assessment before they are able to buy them. This is a regulatory requirement, rather than a platform-led decision.”

Read the rest of this article in the May issue of Portfolio Adviser magazine