How much do fund managers pay each year to be members of trade bodies like the IMA? And in these times of austerity, cut backs and shredded red tape, do they still think it’s value for money.
I only ask because a number of recent decisions don’t smack of time or money well spent.
In fact they make me wonder whether the place isn’t staffed entirely by the type of person who compiles a spreadsheet on optimal deckchair configurations as the icebergs loom.
Take last week’s farcical review of the Absolute Return sector.
Many people have called for this term to be banned, as it is clearly misleading for consumers. Rather than deliver positive returns in all economic conditions, as the name suggests, more than half of these funds have failed to deliver any return at all in recent years.
The FSA cited this as an areas of “potential concern” given the complexity of these funds, and the amount of money rolling into them.
After almost two years cogitation, (no doubt weighing up the risks to investors against the potential impact on some members’ profits) the IMA decreed that the sector shall henceforth be known as the Targeted Absolute Return sector. Although funds within it can carry on marketing themselves as Absolute Return funds.
A fudge of the finest order.
This new name does not even make grammatical sense. Something is either absolute, or it is not. If you are targeting absolute returns, then by definition the returns are not absolute, and dare I suggest should not be described as such.
And the full definition of this new sector is so waffly as to be effectively meaningless. It says: “Funds in this sector may aim to achieve a return that is more demanding than a ‘greater than zero after fees’ objective”.
I think this means fund managers may be trying to make money for their investors. (Only “may” though!) As opposed to those managers deliberately target a loss.
I do not mean to sound trite. I do understand that other fund managers target a return against a benchmark after fees, so in a market falling 5 per cent aim to lose just 3 per cent of investors’ money.
But still, two years to come up with this catch-all definition beggars belief.
But the IMA has form on this. Last year it tripped itself up – repeatedly – trying to redefine its “Cautiously Managed” sector.
Again it came in for considerable flak because of the mismatch between the common-sense definition of this sector, and the permitted parameters, which allowed funds like Arch cru to market themselves under this reassuringly “safe” label.
Again lengthy deliberations ensured, before it decided the split the sector in two, renaming it sector C and sector D. After howls of protest that this would mean -precisely nothing to investors – the people who ultimately keep the whole industry afloat – the IMA backtracked, settling for “Mixed Investment: 20 to 60 per cent shares”.
Of course, most are still generally marketed as ‘cautiously-managed’ funds, although there is considerable difference to a fund with 20 per cent share to one with 60 per cent market exposure.
Still all this focus on relabelling is a useful smokescreen to the main event. Charges.
Pressure is growing on fund managers to be far more transparent about the total cost of ownership – which should include dealing charges, for example – rather than the fictional “total expense ratio”.
The new head of the IMA, Daniel Godfrey, championed low and transparent charges in his previous role as director general of the Association of Investment Companies.
Consumers must hope he can muster a similar enthusiasm at the IMA and drive through real change, rather than window dressing. Still, if the IMA continues to obfuscate ad sweep such issues under the carpet, then I guess the fund managers will not begrudge their annual IMA subs too much.
Emma Simon is deputy personal finance editor at the Telegraph Media Group