Question
I notice in an article about investment trusts you said:
"Investment trusts don't normally pay sales commissions, making them unpopular with commission-based financial advisers."
However on another site I see an IFA insisting that commission has nothing to do with it with the only reason being that most IFAs are unauthorised to recommend ITs and so prevented from recommending them by the FSA. The same IFA tends also to be very dismissive of low-cost index tracker funds.
Could you clarify please? If IFAs are prevented from recommending ITs (and possibly ETFs) even if they thought them appropriate, it rather limits the value of their advice.Answer
The Financial Services Authority (FSA) allows independent financial advisers (IFAs) to recommend investment trusts provided they're authorised to do so. In practice this means an adviser ensuring they're qualified and competent to advise on investment trusts, as well as carrying out/buying research on the investment trust marketplace.
Unfortunately, most IFAs don't bother as it involves hassle and expense. Especially as investment trusts don't normally pay sales commissions.
But while IFAs might moan the FSA doesn't let them recommend investment trusts, it's ultimately their choice. If they really want to recommend investment trusts then ticking the FSA's boxes that allow them to do so is not usually that difficult.
Call me cynical, but it seems pretty obvious to me that the only reason most IFAs don't put themselves in a position to recommend investment trusts is the lack of commission. The same is also true of exchange traded funds (ETFs).
I do have some sympathy for IFAs insofar as the FSA is making their life rather difficult and expensive these days, but as a consumer I would much rather use an adviser who's allowed to include investment trusts in their recommendations than not. And I'd make sure that adviser really knows their stuff as good research is especially important when putting money in investment trusts - there's greater scope for losing money (due to share price volatility and/or gearing) compared to unit trusts.
Assuming the FSA's Retail Distribution Review plans go ahead then from 2013 an adviser will only be able to call themselves independent if they can advise on the whole range of products suitable for you - which should finally force them to consider investment trusts and ETFs when making recommendations.
I notice in an article about investment trusts you said:
"Investment trusts don't normally pay sales commissions, making them unpopular with commission-based financial advisers."
However on another site I see an IFA insisting that commission has nothing to do with it with the only reason being that most IFAs are unauthorised to recommend ITs and so prevented from recommending them by the FSA. The same IFA tends also to be very dismissive of low-cost index tracker funds.
Could you clarify please? If IFAs are prevented from recommending ITs (and possibly ETFs) even if they thought them appropriate, it rather limits the value of their advice.Answer
The Financial Services Authority (FSA) allows independent financial advisers (IFAs) to recommend investment trusts provided they're authorised to do so. In practice this means an adviser ensuring they're qualified and competent to advise on investment trusts, as well as carrying out/buying research on the investment trust marketplace.
Unfortunately, most IFAs don't bother as it involves hassle and expense. Especially as investment trusts don't normally pay sales commissions.
But while IFAs might moan the FSA doesn't let them recommend investment trusts, it's ultimately their choice. If they really want to recommend investment trusts then ticking the FSA's boxes that allow them to do so is not usually that difficult.
Call me cynical, but it seems pretty obvious to me that the only reason most IFAs don't put themselves in a position to recommend investment trusts is the lack of commission. The same is also true of exchange traded funds (ETFs).
I do have some sympathy for IFAs insofar as the FSA is making their life rather difficult and expensive these days, but as a consumer I would much rather use an adviser who's allowed to include investment trusts in their recommendations than not. And I'd make sure that adviser really knows their stuff as good research is especially important when putting money in investment trusts - there's greater scope for losing money (due to share price volatility and/or gearing) compared to unit trusts.
Assuming the FSA's Retail Distribution Review plans go ahead then from 2013 an adviser will only be able to call themselves independent if they can advise on the whole range of products suitable for you - which should finally force them to consider investment trusts and ETFs when making recommendations.
Read this Q and A at http://www.candidmoney.com/questions/question344.aspx
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