The investment trust sector has called for the incoming Labour government to scrap “misleading” cost disclosure rules on the sector that it says are hampering its performance.
Legacy EU regulations mean that since 2018, UK institutions and wealth managers must disclose investment trust fees when advertising them for sale or recommending them.
However, campaigners have argued that this leads to a ‘double dipping’ of fees, as investment trusts are traded instruments, meaning that their share price should already take into account these costs.
The issue has become a central campaigning point for the investment trust industry, with some warning that trusts may be looking to move their listings as far as Switzerland to avoid the rules.
In March, Abrdn, the third largest manager of investment trusts globally, warned that cost disclosure was “the greatest challenge of recent times” for the industry, arguing that retail investors were being pushed away from the sector due to misleadingly high costs.
Indeed, appetite for investment trusts has fallen to its lowest level in over a decade, and their share prices currently sit on record double-digit discounts to their underlying assets.
Now, Richard Stone, chief executive of the Association of Investment Companies, an industry body for investment trusts, has called on the incoming Labour government to fix the issue, stating it could be “an early success” for the incoming government.
He noted that the case for reform won cross-party support at the last parliament, but following the dissolution of parliament, a bill to address the issue was dropped.
“I am afraid my bill is now lost and I have to start the process all over again,” said Tory peer Ros Altmann, who spearheaded the campaign.
However, Stone said that “officials within the Treasury have already done much of the necessary work and resolution will not eat into any parliamentary time, allowing the new government to press forward with what I am sure will be a very full agenda”.
“Front and centre of the Labour manifesto was the need for growth and wider wealth creation,” he added. “Investment companies are perfectly positioned to support those aims, but to do so effectively, there must be an end to regulations that mislead investors and damage the sector.”
“Investors need accurate, clear and useful information to make good decisions, but under current rules they are still being supplied with misleading disclosures that double-count costs.
“We are calling on the new government to act swiftly to resolve these issues and I will be writing to the new economic secretary as soon as they are appointed. I am urging our members and other stakeholders to do the same.”