The lack of a clear industry framework for disclosing fees for investment trusts is causing confusion for investors, according to a survey by Kepler Trust Intelligence.
In September, the Treasury and FCA made trusts exempt from Priips and Mifid II, which had previously caused a misrepresentation of investment trust fees.
Under the PRIIPs framework, investment trusts were required to disclose costs in the same way as open-ended funds. However, because investment trusts have both a NAV and a share price as a listed company, this caused a ‘double-counting‘ of fees, as they are already reflected in the company’s share price.
New rules are expected to be revealed in the first half of next year. However, the absence of a formal framework in the interim has led to disagreement between trusts and retail platforms over how fees should be declared.
See also: Are platforms hampering the investment trust cost disclosure victory?
Some investment trusts have published their Key Investor Document (KID) reduction in yield (RIY) figure as 0%, however some platforms are concerned that reporting zero charges figures is not in line with UK Consumer Duty regulation.
The survey found that 65% of investors find the ‘Statement of Expenses’ document, which some trusts have begun to adopt in place of the KID ROY, easy to understand.
Pascal Dowling, partner and head of funds marketing at Kepler Partners, said: “The debate over the right way to explain costs continues to be a major concern amongst our audience. More than 300,000 people have visited our site so far this year, and it is clear from our survey – which represents a sample of that audience – that there is dissatisfaction about the lack of clarity with which costs are presented, and in particular with the lack of comparability between open and closed-ended funds.
“This lack of clarity has consequences. Almost half of investors surveyed had previously chosen not to make an investment based on fees disclosed in the previous regime, so it is clear that ongoing reforms can unblock barriers to investment, if done properly. However, current divergence in the interpretation of the rules by boards and platforms is causing confusion for investors and requires swift, decisive resolution.”
The survey of over 300 retail investors found that 43% had decided not to make an investment based on the fees disclosed under the previous cost disclosure regime.
Meanwhile, 25% plan to allocate more to investment trusts following the change in disclosure rules. While the majority remain unchanged, just 2% said they were planning to allocate less in light of the new rules.
