Investment trusts and the wealth managers, discretionary fund managers and platforms who distribute them will no longer have to publish key investor documents (KIDs) or ongoing costs if a new proposed government bill is successful.
Last night a draft statutory instrument proposed by the Treasury called The Packaged Retail and Insurance-based Investment Products Regulations outlined how the government could finally arrest issues surrounding the cost disclosure of investment companies.
Earlier this year it was estimated that the investment trust industry was losing out on about £7bn per year due to misleading costs figures.
While open-ended funds charge investors a management fee for taking their money and pass on the net asset value gains, investment companies do not. Instead, investors get their returns through the changing share price, which is unaffected by any costs incurred by a trust.
Yet trusts have been forced to disclose costs in the same way as funds due to European regulations inherited before Brexit.
In September, the government and the Financial Conduct Authority (FCA) lifted the much-criticised cost disclosure requirements on investment trusts, developing its own framework.
The Treasury report released yesterday stated: “It is broadly accepted by industry and the government that the single aggregated figure that is being produced under current EU-inherited rules is not an accurate representation of the actual cost of investment in shares in an investment trust.”
Moving forward, investment trusts, along with persons advising on or selling shares of investment trusts, “will not be required to produce the KID (a standardised information document prepared for products in scope of the PRIIPs Regulation)”.
In addition, closed-ended funds and the firms investing in them will not be required to disclose costs and charges relating to an investment trust. This includes funds investing in investment trusts, which will no longer need to aggregate the charges of these vehicles, as they do not exist.
Bill MacLeod, managing director of Gravis Capital, said this is “further than any of us thought possible”, adding that he was “thrilled” by the outcome.
Although the bill has a long process before being passed, he noted that this is “considered to be high priority” for the government.
“The bill will have to pass through the draft stage and be passed by both Houses [Commons and Lords]. Once that process starts it cannot be amended and, since the mid-1940s, only three bills have failed to progress, so the chances of success are thought to be very high,” said McLeod.
The “light legislative programme” means the progression through this process is likely to be “swift” once the draft phase has concluded.
“For now, we celebrate the fact the inappropriate and misleading publication of costs is no longer required, and investors can make informed decisions based on accurate information,” he concluded.