Investment trust body calls for Treasury to fix unnecessary rules costing billions

The Association of Investment Companies (AIC), an industry body representing investment trusts, has called on the Treasury to finally take action on regulatory issues estimated to cost the economy £7bn a year in lost investment.

Issues around cost disclosure, which lead to the price of investment trusts being ‘double counted’, have been slammed by almost every trust manager around as hampering success in the sector.

Currently, institutions and wealth managers must disclose investment trust costs as part of their own, making the products look more expensive.

While this is also the case for open-ended funds, investment trusts are traded instruments, which, campaigners argue, means their market values should fully reflect fees.

Speaking at the AIC’s conference earlier this year, City minister Bim Afolami said the government was aware of the issues around cost disclosure that the industry was facing but did not give a specific timeframe for a resolution of the issue.

In March, over 130 of the City’s most influential investment trust managers signed a joint letter to the chancellor to abandon the regulations.

“Fixing the problem by doing the same as the rest of the world could restore over £7bn per year of lost investment – with no cost to the taxpayer,” the letter said.

Some have criticised the AIC for not taking action on the issue fast enough, after it failed to join others in writing to the Treasury to tackle the issue.

Meanwhile, Abrdn, one of the largest runners of investment trusts, warned that reforms around the cost disclosures were “at risk of stalling” after Jeremy Hunt’s Spring Budget made no mention of broader alterations for the sector.

The AIC said yesterday that the “swiftest way to resolve long-running issues around misleading cost disclosures” would be for investment trusts to no longer be treated as Consumer Composite Investments.

Richard Stone, chief executive of the AIC, said: “It’s clear that the issues around investment company cost disclosure are harming the industry and putting off existing and potential investors.

“The Treasury has the power to resolve these issues by removing investment companies from the scope of regulated cost disclosure – returning to the position that we had before January 2018 when EU-derived legislation such as MiFID II and PRIIPs was introduced.

“Delaying this decision is damaging market confidence. Investors are receiving misleading information which may stop them buying shares which can deliver strong long-term performance.

“The current rules are hamstringing demand for the investment company sector which is a global leader, with the capacity to mobilise capital for UK infrastructure, renewable energy and businesses. We call on the Treasury to announce its decision urgently so we can move to the next step in the process of resolving the issues with cost disclosure.”