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Alphabet soup

Isn’t it marvellous that, even in these dark times of austerity packages, sovereign debt crises and Jonathan Polin leaving Ignis, we can still rely on the Investment Manage-ment Association for a bit of a laugh? Like any good practical joker, the IMA sensed we were all in need of some light relief and so came up with its proposals for how the managed fund sectors should be renamed.

This important news story is developing on almost hourly basis so this column does risk being severely out of date by the time you read it following, say, a U-turn on a U-turn or a serious piece of re-mulling. Still, as I type, the IMA has signalled it means business by blogging a response to criticism of its revolutionary proposals for an “Alphabetic System” that would see A not stand for active, B not stand for balanced, C not stand for cautious and D not stand for defensive.

This criticism came from the likes of Fidelity, Investec and Skandia but was led – chronologically, at least, if not in any way that implies actual leadership – by Second Coming Asset Management, (Scam) as exclusively revealed in the pages of this public-ation’s sister magazine Fund Strategy.

Fidelity’s mournfully noted disappointment was an understatement as to how it felt, Skandia deemed the renaming “quite frankly, a farce” while Investec, ever the hard nut, thundered: “We will be feeding back our thoughts.”

None of them I am aware of has, as Scam has at least tried to do, suggested an alternative to the IMA’s proposal and this is possibly because, as Scam has also acknowledged, it is a completely impossible situation.

As I understand it, the industry has to come up with a way of naming something objectively that cannot be interpreted subjectively – or, to put it another way, to prevent one man’s “cautious managed” being another’s “claim to the Financial Ombudsman”.

At this point, we are dangerously close to stepping into what I believe may be called an epistemological minefield – epistemology being, as of course any financial services professional knows, the branch of philosophy that studies knowledge and attempts to answer the basic question as to what distinguishes true or adequate knowledge from the false or inadequate variety.

No, I am not writing this after “a good lunch”, thank you very much. I am merely suggesting if you name any set of four things in any vaguely coherent way, then each of those four names is going to be imbued with extra meaning when taken in the context of the other three.

Thus, for any but the most dyslexic investor, A, B, C and D to all intents and purposes carry the same significance as active, balanced, cautious and defensive or – the one I suspect would be the FSA’s preference – very, very, very risky, very, very risky, very risky and just plain risky.

In which case, the only lettering system that could work is the random one employed by the High Court in super-injunction cases – where CTB denotes Ryan Giggs and so forth. I am not sure that helps anyone, although it does tick one of the IMA’s boxes of grouping comparable funds without conveying advice while being every bit as “concise and neutral” as its own proposal.

That said, where I do have a fair degree of sympathy with the IMA’s defence of its Alphabet System is when chief executive Richard Saunders says: “These funds are for the most part sold with advice rather than bought direct by consumers and advisers should be expected to do their homework.”

If it is true managed funds are predominantly sold by advisers – and, as RDR lumbers ever closer into being, that does seem probable – then the least those advisers can do is outline the asset allocation they are outsourcing.

But then, if it is true that managed funds are predom-inantly sold by advisers, why not just call the sectors something like, I don’t know, Active, Balanced and Cautious. In fact, the IMA have been such good sports, let’s have D for Defensive too.

Julian Marr is editorial director of and


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