Advisers slam IMA's decision on managed sectors
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Advisers have slammed the Investment Management Association’s decision to rename the active, balanced and cautious sectors with letters denoting the degree of manager discretion in the funds.
Last week, the IMA set out plans to rename the active, balanced and cautious managed sectors as managed A, B and C and create a new managed D peer group for the least risky managed funds.
The IMA says the aim is to indicate that funds are “managed” and more subject to a degree of manager discretion.
It will conduct an annual review of the absolute return sector alongside consultation on the fourth managed sector.
Under the changes, the IMA will have the power to remove funds from the sector if they do not comply with the spirit of the definition.
The changes will be implemented on July 1 for sectors A, B and C. The proposed date for the introduction of the fourth sector is January 1, 2012.
Hargreaves Lansdown head of research Mark Dampier says: “The IMA has done a great job of making itself look a laughing stock, just as it did with the UK equity income sector. I do not know what planet it is on but it certainly is not planet reality.
“The problem is less to do with the sectors but the fact that marketing departments in the industry are labelling funds in the most misleading way, so renaming the sectors will not help.
“Both IFAs and direct buyers need to get under the bonnet of these funds to see what they are buying.”
Skerritt Consultants head of investments Andy Merricks says the new sector definitions do not improve clarity on the risk profile of funds.
He says: “It is like going to the garage with a broken-down car, only for the mechanic to say it is one of two parts that is broken but you have to figure out which one it is.”
Main points of IMA review
- The active, balanced and cautious sectors will be renamed A, B and C to reflect manager discretion in the fund, with A representing the most discretion.
- A fourth managed sector, D, will be introduced and a consultation will be carried out in tandem with an annual review of the absolute return sector.
- Funds that do not comply with the spirit of the sector will be removed from their sectors.
- The IMA says fund managers should rename funds to reflect the change but will not ask them to remove active, balanced and cautious from their names. Funds are expected to make the changes by the end of 2011.
- The IMA is calling on funds not to mislead investors by incorporating the name of one of its sectors if it is not classified in that sector. A fund called balanced managed in the B sector would have to justify retention of that term if it sought to move to the unclassified sector.
- The IMA also highlighted regulatory concerns with multi-asset and mixed-asset terms. The sectors committee says it may be desirable to flag funds which have developed into a more multi-asset approach rather than the traditional managed approach.
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