As advisers prepare for a Brave New World from January 2013, it is perhaps not just the adviser community undergoing something of a ‘baptism of fire' as we prepare for a post RDR landscape. In the last six months I have written and presented twelve hour-long adviser training modules, free to download from our website (or complete ‘live', depending on your preference), to help advisers get to grips with the ins and outs of the sometimes complicated (though worth it) world of investment companies.
I can honestly say it's been both fun and rewarding. Around 340 advisers have completed the training modules so far and this would have been an impossible feat in so short a space of time without the wonders of the worldwide web. The training has been accredited by the Institute of Financial Planning and Chartered Insurance Institute, and given the hoops that they quite rightly expect us to jump through to gain the accreditation; it's been a packed agenda. I have structured the training using the FSA/FSP examination syllabus and the training is to at least level four (as required post 1 January 2013). So the training also includes broader gap fillers such as investment theory and principles.
The Q&A sessions following the online training have been genuinely illuminating. As might be expected we have had many legitimate questions about the pricing structure of investment companies, with gearing and charges also high on the agenda. Many advisers have wondered what constitutes a ‘safe' level of borrowing in an investment company. Of course this is relatively subjective, although one adviser was very relieved when I pointed out that the gearing (or borrowing) on one, extremely successful and high profile UK Growth & Income investment company was 25%, not 125%! Of course this reflects some of the challenges we are up against because this is an easy mistake to make and is in no way the fault of an adviser coming to the sector relatively from the cold. No gearing in an investment company is expressed as 100, whereas 25% gearing is expressed as 125, but it is easy to see why someone might assume this is 125% gearing. This illustrates why education is so crucial - this simple mistake could actually put someone off the sector for life! For the record, the average investment company had net gearing of 6% and gross gearing of 11% at the end of January 2012 - not quite enough to break out in hives about!
Of course there are many new definitions to get to grips within the investment company sector, and we have been asked them all. Going back to the issue of gearing, we have often being asked the difference between ‘net' gearing versus ‘gross' gearing (net takes into account issues such as cash holdings which would ultimately offset the gearing, whereas gross gearing doesn't). And with charges increasingly in the spotlight, it's also encouraging to see advisers asking more questions about investment company TERs, performance related fees, and dealing costs.
We have many more training events planned, and we'll be on the road from June through to November in a series of adviser seminars. We'll be treading ground from London right through to Scotland, with some interesting speakers, from fund managers through to analysts, joining us. We look forward to meeting as many advisers as possible, and we are also happy to offer bespoke training.
There's a lot for advisers to get to grips with. I'm not going to pretend that investment companies are easy and straightforward. They do take a little more work and research, but they are worth it. Collins Stewart recently issued research suggesting that over the past ten years, investment companies have outperformed open-ended funds by a healthy margin in eight out of nine regional sectors, and relevant benchmarks in seven. Meanwhile, unit trusts have underperformed benchmarks in each one of these regional sectors. Collins Stewart thought this would make ‘uncomfortable reading' for advisers in the run up to RDR. I like to think instead that it makes inspiring reading. Advisers do seem to be coming around, slowly but surely, to the many advantages of the investment company sector. There's a lot of work to do but we are here every step of the way.
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