UK financial advisers play a key role in helping millions of individual investors make the most of their money, and they have a responsibility to provide their clients with the best investment options. In this exclusive article for IFA Magazine, James Saunders Watson, Director at Warhorse Partners, explains how and why fewer than 10% of advisers recommend investment trusts (also known as investment companies) to their clients, despite their clear advantages over other collective investment funds.
Recent research examines the reasons for this lack of participation in the investment company sector and sends a clear message that asset managers and individual boards need to make much greater efforts to reach advisers and their clients, if they are to tap this vast pool of potential investors.
Minor players
The pool of assets overseen by financial advisers is almost four times greater than the total assets of all investment companies listed on the London Stock Exchange of £260bn.
Yet although the number of investment company shares held by IFAs increased by 22.4%, over the five years to 2025, adviser platforms still hold just 2% of these companies in terms of both value and number of shares.
The reasons that advisers often avoid investment companies are well rehearsed; liquidity, lack of partial shares and the challenges of including investment companies in model portfolios.
However, the lack of ownership does remain surprising given the clear advantages they offer over other types of collective investment funds.
Superior returns
The most significant argument in favour of investment companies is that they frequently outperform other investment funds, even when they invest in very similar assets.
Recent research conducted by the investment company industry body, the Association of Investment Companies (AIC), compared ´sister funds´ in which the same investment manager runs both investment companies, which have a fixed pool of capital, and so-called open-ended funds with similar investment objectives.
This research showed that more than 70% of investment companies delivered superior returns over one, three, five and ten years to end March 2026.
This outperformance is partially explained by the fact that investment companies have a unique ability to use gearing to enhance returns by increasing their exposure to rising markets and limiting downside by lowering exposure to market downturns.
Wider access
Investment companies offer other advantages which can boost returns over time.
While the managers of open-ended funds always need to be able to sell assets to meet investors´ withdrawal demands, having a fixed pool of capital allows investment company managers to adopt a more patient, long-term approach which gives investments the chance to realise their full potential without worrying about short-term cash requirements.
This longer perspective also allows investment companies to invest in potentially attractive but illiquid assets such as property, infrastructure, hedge funds, and hard to access privately owned assets – all of which can make major contributions to long-term performance.
Lack of understanding
There are several reasons why financial advisers eschew investment companies despite their irrefutable attractions. Historical bias is one likely explanation.
In the past, advisers received commission for placing investors into opened-ended funds. These commissions are now outlawed, but open-ended funds remain the path of least resistance for most IFAs.
This inertia is allied to a lack of knowledge about the attractions of investment companies in general, and the merits of specific trusts, according to research commissioned by the AIC. Indeed, 61% of advisers reported little or no contact with asset managers or individual investment companies. Clearly, the sector´s marketing efforts are simply not reaching advisers, often targeting direct retail investors instead.
Given this lack of information, understanding and ongoing sales support, it is hardly surprising that investment companies are conspicuous by their absence from IFA buy lists and adviser platforms. For example, Quilter, one of the largest advisor platforms, does not offer any investment company listings.
Education is key
So, if asset managers and investment company boards are serious about stimulating greater interest and demand, they need to escalate their efforts to penetrate and educate the adviser market about the merits of investment companies.
This message needs to be reinforced with ongoing updates on performance and strategy. If well-targeted and consistent over time, such efforts should increase adviser demand and compel advisor platforms to incorporate investment companies into their platforms and model portfolios.
The investment company sector has much to offer advisers and their millions of clients. But there is a lot of work to do to ensure investment companies claim a much greater share of this market.
