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IMA rejects FSA proposals for reduction in yield requirement

The Investment Management Association has opposed the Financial Services Authority’s proposals to require authorised funds to continue to publish reduction in yield information.

In a response to the FSA’s consultation paper on reduction in yield, the IMA has called for the abolition of the requirement on the grounds that it brings no apparent benefit to consumers and is potentially misleading when applied to funds.

IMA director of authorised funds and tax Julie Patterson says: “RIY is not a clearly understood measure of the cost of investing. It is calculated over fixed periods of time so it will generally not be the same periods over which the consumer wishes to invest. Also, the calculation requires assumptions to be made concerning growth of the fund and how long the investment is held. It can therefore lead to a false expectation on the part of the consumer as to the actual performance of the fund.”

According to Patterson, RIY fails to reflect the reality of the funds market by ignoring discounts applied to initial charges and the rebating of trail commission which are both common in the fund management industry.
She also highlights that it is not a requirement for European funds which are marketed into the UK and which are a growing part of the UK funds market place.

She says: “The majority of our member firms will undertake an annual review of their ‘simplified prospectuses’ in early 2009. The FSA should abolish the requirement by the end of this year so that work is not carried out unnecessarily.”


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