However, Whitechurch’s managing director Gavin Haynes and AWD Chase de Vere’s Patrick Connolly say the distinct pricing advantage of trusts has disappeared.
Haynes (pictured) says regulatory changes at the start of the year have levelled the playing field between open- and closed-ended funds when it comes to cost. "It has traditionally been the case for retail investors that investment trusts were the cheaper route to active management," he said.
"Investment trusts did have a significant pricing advantage, but with the changing pricing structure post-RDR the price-difference has eroded somewhat. The new charging structure from unit trusts and OEICs is making active management more competitive."
"Before, there was a very strong argument that investment trusts were the cheaper way to get active management, but the removal of adviser commission has levelled the playing field."
"Now you can buy funds on platforms for as little as 1 per cent," he said.
Haynes adds that the sluggish way platforms have reacted to listing investment trusts has put the closed-ended industry at a significant disadvantage.
"It’s an issue for their distribution that so much money is being held on platforms by DIY investors and advisers."
"It’s certainly an issue for investment trusts that a lot of platforms don’t allow you to hold them."
"We certainly expected more activity than there has been. Platforms have been dragging their feet."
Haynes says the investment trust industry could likely respond by reducing charges further, especially if the move to platforms is too slow and protracted.
However, Haynes says investment trusts are still the cheaper option, albeit marginally.
"Some investment trusts can still provide very low costs while open-ended funds are still very much in line," he said.
He adds that there are other charges investors should be aware of with open-ended funds, such as platform fees or custodian charges, particularly for holding an ISA or pension on a platform.
Connolly (pictured) goes so far as to say the cost advantage investment trusts had before regulatory changes came into force was practically non-existent.
"Traditionally, investment trusts have been cheaper than OEICs and unit trusts but the charges have been bundled in with an adviser commission," he said. "If you’re still buying execution-only, you might still be paying bundled charges, but with clean share classes on platforms and with advisers it is cheaper."
"The charges now for investment trusts and open-ended funds are broadly similar."
"And with investment trusts there are some underlying charges that aren’t as clear as they should be."
"Charges always will be important [when investing], but whereas in the past investment trusts had a significant advantage over open-ended funds, that advantage has largely disappeared."
"Investment trusts on the whole are still cheaper, but the major differential that existed before has narrowed."
Connolly points out that many investment trusts carry additional charges when it comes to building an ISA and that the charges are not as transparent as those of open-ended funds.
He adds that charges are much easier to compare with open-ended vehicles while investment trusts lack the structure and standardisation to make this clear.
According to FE Trustnet research, investment companies still have lower charges on average than open-ended funds.
AIC data shows that the average ongoing charge for a trust that invests in equities is 1.21 per cent.
When investment companies in the alternative sectors are included, the average ongoing charge for all AIC members is 1.53 per cent.
Some investment companies pay a performance fee too, an additional charge that is only paid if a company outperforms its benchmark by a pre-agreed margin.
The average actively managed fund available to UK retail investors has ongoing charges of 1.73 per cent, according to FE Trustnet research.
Some funds, such as the niche Premier ConBrio Sanford Deland UK Buffettology fund, has charges as shockingly high as 5.13 per cent.
The Newton Global High Yield Bond fund is one of the least expensive funds in the entire IMA universe, with ongoing charges of just 0.91 per cent.
"There has been a debate about whether investment companies will maintain their cost advantages in a post-RDR world," said the AIC’s Annabelle Brodie-Smith.
"It is true that the retail-focused investment company sectors in particular continue to offer excellent value for money, combining low cost with strong performance and enviable dividend track records."
"It is also the case that the alternative sectors tend to have higher charges due to their specialist nature."
Brodie-Smith says a third of conventional trusts have charges of less than 1 per cent, adding that this figure is even higher for trusts that invest in equities alone. Of the AIC’s members that run equity-focused trusts, 39 per cent have sub-1 per cent charges.
