Marketing and regular commission payments are the two tools AITC director general Daniel Godfrey int...
Marketing and regular commission payments are the two tools AITC director general Daniel Godfrey intends to use to turn around the fortunes of the investment trust industry.
The first part of the strategy was put in place last year with the launch of the 'its' campaign and Godfrey is now trying to persuade the membership to accept the second part - the launch of a fund supermarket containing not only investment trusts but unit trusts and Oeics as well. This long-touted 'generic product' is intended to bind in the intermediary community as distributors of closed-end funds.
Godfrey talks to James Thorneley about the pros and cons of the 'its' campaign and plans for the AITC wrapper product.
Why are you launching a generic product when fund management groups already offer their own branded investment wrappers?
What the 'its' campaign has done so far is raise consumer awareness of investment trusts. The next stage means we have to deepen that awareness so not only will investors know what investment trusts are but also want to invest in them.
The size of our task means we have to make a breakthrough with IFAs giving them enough reasons to buy investment trusts and also close off reasons for not buying investment trusts.
One of the big reasons intermediaries do not like investment trusts is the fact that the basis of buying investment trusts through saving schemes and Isas varies so widely from one scheme to another. The 'its' campaign will warm investors to the idea of trusts and the generic product is planned to make it as easy as possible for IFAs to buy shares in trusts.
Are the only reasons why investment trusts are not used more by IFAs, the lack homogeneity of charges and the levels of commission on wrapper products?
Those are important reasons, but there are others. Most important is the combination of complexity and familiarity. Cars and hi-fi equipment are complex but this does not stop me buying them. This is where our education and training programme for advisers is important.
Will the generic product be available to investors directly?
I am not sure yet but if it is, it will be cheaper for investors to go via an IFA or a stockbroker. Fee-earning advisers will be able to get discounts from the service.
Why is it important to also offer unit trusts and Oeics?
Restricting the saving products only to investment trusts will encourage monogamy. IFAs will either buy other products elsewhere anyway or be less inclined to use our service which means that opportunities for them to buy investment trusts are lost. Consider the IFA who would like to mix investment trusts and unit trusts in a client's Isa portfolio. The client can only have one Isa per year, so if we do not offer the combination, the IFA will probably choose unit trusts only. Making our service into a truly comprehensive collective funds supermarket may give it the edge that encourages IFAs to test the water.
What is the current situation regarding funding for the next stage of the 'its' campaign?
Invoices were sent to boards last week for the first part of the second-year funding requirement. A further invoice will be sent in January. Only three of last year's participants are not contributing this year and that is due to them winding up.
In addition, there are probably between 15 and 20 trusts that are unhappy about the amount they are being asked to contribute. They thought they would have to pay half of what they paid last year but we have announced that it will be 80% of last year's figure. This was due to not every trust contributing to the first year's campaign. We started off with less than we wanted.
So we have had notification of reservations regarding the amounts. Clearly we are in dialogue with these trusts and have until the end of the year to resolve the situation. The first part of the second year of funding is less than 50% of year one's contribution. This gives us time to decide the way forward.
What is the likely way forward?
Between now and the end of the year there are a number of possible outcomes. We may be able to persuade the trusts of the merits of contributing 80% of initial contributions. Or, the trust may still be unwilling to contribute 80%. This would have a significant but not crucial impact on the budget.
We would still get more by asking the remaining trusts for 80% of last year's contributions rather than including the 15 or 20 trusts by reducing the requirement to 50%.
But more importantly I do not want to split the industry and see these 15 to 20 trusts not participate any further in the campaign. Obviously I cannot ask for 80% from some boards and 50% from others.
The introduction of a generic product may solve these problems. All trusts will pay less than they are currently contributing to the 'its' campaign. We will probably be looking for at least a medium-term marketing strategy instead of the 'its' campaign, which is due to end in two years' time.
In the first quarter of 2000 the vast majority of unit trust sales were in only three sectors - UK All Companies, Europe and Technology - and from a small group of providers. Would a generic product benefit trusts outside these three sectors and whose names do not include Aberdeen or Invesco?
You have to take a longer-term view. Although Europe and Technology were in vogue at the beginning of this year they may not be next year.
A group such as Flemings can spend more on IFA workshops, but all trusts will have a seat at the table.
Fund supermarkets were launched almost a decade ago but now the arena is dominated by just two players, Fidelity and Charles Schwab. What will differentiate the AITC supermarket from the others being launched in the UK?
We will be one of the first into the market offering such a wide range of products. We may also have some price advantages given tha
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