A private members' bill tabled by former pensions minister Ros Altmann, which urged the government to remove investment companies from the Alternative Investment Fund Managers Directive (AIFMD) regulation, was selected in the ballot last week and will have its first reading on 22 November.
Following a debate on the issue at the House of Lords on Monday (13 November), Richard Stone, chief executive of the AIC, said the bill would hopefully "accelerate action on this crucial issue of investment company cost disclosure".
Emma Bird, head of investment trusts research at Winterflood Securities, said the current cost disclosure rules appear to create an "unlevel playing field" for the investment trust industry.
The sector has been weighed down by some of the widest month-end discounts in 15 years, which Bird said was mainly due to macroeconomic factors. However, she noted these disclosure requirements are also likely to have weighed on sentiment towards investment trusts.
Iain Scouller, managing director of investment funds at Stifel International, said it was a "frustrating" situation for investment trusts to be dealing with.
"Listed trusts got caught up in something that they never intended to be part of...it needs to be resolved," he said.
Stone said the bill provides a way to speed up the process of "getting the issue of cost disclosures resolved" and "reaching a better place" for investors and its members.
"We have been working hard lobbying the FCA and other policymakers on this issue and have called for emergency action, as well as a root and branch review of cost disclosure," he said.
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The AIC has long been in favour of reforms to investment trust costs, but for the first time, the group has put forward its own cost disclosure proposal, which entails that platforms, wealth managers and advisers disclose the ongoing charge to retail clients.
"The ongoing charge comprises the management fee and other ongoing costs such as directors' fees and accounting fees," the association said.
"The investment company in its own cost disclosure (the successor to the Key Information Document) would disclose the ongoing charge as well as separately disclosing transaction costs, any performance fee and gearing costs," it said.
"Where the investment company is held by another investment company or fund, its costs would not be included in that fund's own cost disclosure."
'No merit in including gearing costs in any disclosure'
However, James Carthew, head of investment companies at QuotedData, pushed back on the AIC's call to disclose gearing costs.
Carthew said that while he was "pleased" to see the AIC is "throwing its weight" behind the Altmann bill, the association's proposal "just highlights how overly complex cost disclosure has become".
"We see no merit in including gearing costs in any disclosure, for example," he said. "Like fees on underlying investments, these just reflect an investment decision, the outcome of which is included in the net asset value return.
"No fund should be penalised with an inflated cost figure for judicious use of gearing - which is after all one of the strengths of the investment company structure."
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Stifel's Scouller stood by the AIC, calling its proposal "pretty sensible" and adding that "for investors, the more information you can provide and the different numbers you can give them and look at is a good thing".
He said: "The central proposal is to give people a key number and then you want to give people more colour around other costs and leverage."
Winterflood's Bird echoed Scouller's support: "The AIC's proposals make sense."
"Disclosure of an investment trust's ongoing charge ratio alongside a separate statement of itemised costs, such as transaction and gearing costs, promotes good transparency, which we support. In addition, this may aid the proposal approval process," she said.
"At the same time, the removal of the need to disclose ‘double counted' costs supports a more level playing field with operating companies. Furthermore, this speaks to the fact that investment trust shareholders do not pay any fund fees directly, much like any other listed company; investors simply receive the share price total return."