Competitive edge to round trip of buying and selling

with the Glasgow Herald to stage an investment trust evening in Glasgow

at which several hundred readers turned up. Since then the event has

been repeated twice with equal success.

Marketing of investment trusts has made great strides forward since

these days, and now the AITC's efforts are being directed at financial

intermediaries as well as at private investors.

Financial intermediaries recommend investments to their clients, often

when large sums are available, such as from an early retirement or an

insurance policy maturing.

Such intermediaries have a wide range of investment vehicles to choose

from on behalf of their clients. Some are insurance linked, but often

unit trusts are proposed. Until recently it would be unlikely that an

independent High Street broker would direct his clients to investment

trust shares, however superior their performance.

Now all that is changing. How quickly may depend as much on the

investment trust themselves as on the independent intermediaries and

their clients.

Under the Financial Services Act, a broker should give his client the

best advice. In theory at least that means that he should not

discriminate between unit and investment trusts when making

recommendations to his clients. The AITC, backed by the superior

performance of investment trusts, is hot on this point, but if

intermediaries are to pick investment trusts they must develop an

expertise in this area.

Regularly monthly statistics are published by the AITC to measure the

performance of investment trusts, indicate areas of speciality, and give

details of important factors such as geographical spread and the

discount (or premium) to net asset value.

Most investment trusts do not have special arrangements to remunerate

intermediaries if they make purchases of their shares on behalf of

clients. Some groups have now recognised that this puts investment

trusts at a severe competitive disadvantage to unit trusts.

This problem was tackled first by Martin Currie when it launched its

investment trust savings plan in November 1987, immediately after Black

Monday. The scheme has been enormously successful not withstanding the

inauspicious timing of its launch.

The Martin Currie plan has been better marketed than most other

investment trust savings schemes, but its most notable feature was that

it made provision for the payment of commissions of up to 3%, to be paid

by the clients, to financial intermediaries in respect of lump sum

purchases.

Not everybody in the investment trust world welcomes this initiative,

but it was too good an idea to remain a Martin Currie monopoly.

Marketing is not always the strong point of investment trust houses,

but as they have diversified into unit trusts and pensions it has been

acknowledged at the very least as a necessary evil.

Across Charlotte Square from Martin Currie, Ivory and Sime became

increasingly anxious to build up private investor loyalty in its

investment trusts as a result of encountering major difficulties with

institutional investors over the reorganisation of a number of problem

trusts.

Down in London the largest firm of investment trust managers, Robert

Fleming, founded over 100 years ago by the Dundonian of that name, was

concerned, too, to make the most of its investment trusts and to market

them more effectively.

Because of the fixed capital nature of investment trusts they cannot

be sold off the page in the same way as unit trusts. Investment trust

savings schemes can be marketed because shares bought through them are

from the fixed pool and purchases are made through the Stock Market,

usually by the bank or other institution administering the scheme.

An investment trust, being a company, has to be careful that it is not

trapped into pushing its own shares in breach of companies legislation.

This means that if you participate in the Fleming investment trust

savings plan, through which the shares of 10 and shortly 11 investment

trusts can be bought, Robert Fleming cannot assist in choosing which

investment trusts suit your needs. For this an independent adviser is

required. Not everybody has a stockbroker, so Fleming wanted to involve

other financial intermediaries.

Earlier this year Fleming and

Ivory and Sime joined forces with Martin Currie to market their

investment trusts in collaboration and to offer financial intermediaries

up to 3% commission on lump sum purchases of investment trust shares.

This is exactly the same rate of commission as intermediaries can earn

from purchases of unit trusts, and puts the investment trusts offering

commission to intermediaries on a fully competitive basis with their

unit trust rivals.

The three groups who represent around 20% of the investment trust

industry staged a nationwide roadshow to explain their schemes to

intermediaries and to persuade them of the merits of their trusts.

Ivory and Sime took the opportunity to recast its existing savings

scheme. Now the 3% commission is applied to all lump sum investments

through the new savings scheme, but disposals of shares held through the

scheme are free of charge. Taking all costs into account, Ivory and Sime

believes that it has come up with arrangements for the round trip of

buying and selling which have a competitive edge on other types of

investment.

It is early days yet for the payment of commissions on investment

trust shares to financial intermediaries, but other investment trust

houses will be watching closely the results obtained by the Robert

Fleming, Ivory and Sime, Martin Currie triumvirate.

The contrary view expressed most cogently by Scottish American

Investment Trust, whose Saints saving scheme is one of the most

successful in the country, is that the whole investment business should

move away from commissions to fees for advice, as has been proposed by

the EC Commission.

In an ideal world there is much to be said for this, but the problem

is that fees are more visible than commissions even if the latter are

fully disclosed.

So unless the whole basis of conducting investment business is changed

by EC edict, it seems likely that the payment of commissions to

financial intermediaries will gain widespread acceptance among

investment trusts, just as savings schemes have done. If it results in

wider private investment in investment trust shares it will be a benefit

to the trusts themselves, the financial intermediaries and, most

important of all, their clients.