The Centre for Policy Studies is finalising a major peer reviewed report which will call on the Investment Management Association to stop labelling fund sectors and for the powers to be passed to an independent body.
The report is expected to be published in June and its author, CPS research fellow Michael Johnson says it will make around 100 recommendations on how to put savers at the centre of the industry’s approach.
Speaking to Money Marketing, Johnson adds that by labelling Arch cru funds as cautious managed the IMA “unwittingly facilitated” misleading claims about the funds’ risk.
The IMA has now moved to a system where its managed fund sectors are defined as either mixed investments 0-35 per cent shares, mixed investments 20-60 per cent shares or mixed investments 40-85 per cent shares. Johnson says this does not go far enough.
He says: “Clearly it would help investors if funds had labels, but what is the underlying objective of the IMA’s involvement in this space? It is to promote the interests of its members and sell more funds. It does not share a common purpose with savers.
“Arch cru funds were sold by their salesmen on the basis of the cautious managed IMA label and the implication from that was the risk was low. It may well be the IMA’s intentions are completely honourable but we have now come to learn it clearly was not low risk. Therefore the IMA unwittingly facilitated what has emerged.”
Instead, Johnson suggests that labels should be applied by an independent body whose work is paid for by those who rely on them. “People have to be paid to do this and ultimately it should be paid for by the beneficiaries of the labelling – savers and investors,” he says.
An IMA spokeswoman says: “The IMA sectors are not and never have been risk ratings. The sector definitions have always been plain for all to see on our web site.”
The report is being reviewed by members of the House of Lords and people from the industry.