Investor survey on investment trust cost disclosure reforms

A new survey from Kepler Trust Intelligence, the UK’s leading source of investment trust research for private investors, captures investor responses to the latest investment trust cost disclosure reforms. The results, from a sample of Kepler Trust Intelligence’s audience of 300,000 investors, highlight ongoing confusion over the lack of a clear industry framework for disclosing fees.

An important issue

In September, the Treasury and Financial Conduct Authority made a joint announcement that London listed closed-ended funds would be exempt from two EU directives – PRIIPS and MiFID II – that had led to an effective ‘double counting’ of costs. These two pieces of EU legislation had previously meant that investment trusts had to produce a key information document (KID) with a single cost figure reflecting the all-in costs of holding the investment, regardless of whether they were borne by the end client, known as the ‘reduction in yield’ figure (RIY).

This exemption is an interim solution, with new disclosure rules expected to follow in the first half of 2025. The absence of a formal framework has led to disagreement between trusts and retail platforms over how fees should be declared; whilst some investment trusts have published their KID RIY figure as 0%, many platforms are concerned that reporting zero charges figures is not in line with UK Consumer Duty regulation.

Pascal Dowling, Partner and Head of Funds Marketing at Kepler Partners, commented, “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 out 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.”

Investor sentiment

Alongside the results below, respondents in the survey shared their comments on how they view the latest reforms to cost disclosure.

The overriding sentiment is that greater clarity is required to ensure a uniform, industry-wide approach to how both investment trusts and retail platforms approach the issue of cost disclosure. There are recurring calls for a clear framework that allows easy, like-for-like comparison between open- and closed-ended funds, putting investment trusts on a level playing field with other vehicles when investors are comparing options.

Some investors displayed frustration that retail platforms are ‘misleading’ customers and ‘getting in the way’ by refusing to display KID RIY figures as 0%, given their concerns over breaching the Consumer Duty Act, calling for platforms to take a pragmatic approach to implementation.  

Results (based on responses from 311 retail investors)

Less than a quarter of investors used the KID RIY figure in the past.

65% of investors find the ‘Statement of Expenses’ (SoE) – now being used by some investment trusts in place of the KID RIY – easy to understand.

Almost half of investors found the previous cost disclosure regime off-putting when considering certain investment trusts.

25% of investors plan to make more investments in investment trusts as a result of the change in regulation, but the views of the majority of investors remain unchanged.

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