The newly rebranded Investment Association has bounded into 2015, unleashing a flurry of papers on issues that have been needling the industry.
Since replacing the IMA brand on 2 January, the trade body has published guidance on default share classes for fund performance comparison and comprehensive cost disclosure.
It has also set out proposals for a potentially major shake-up of its fund sectors to better cater to the proliferation of “outcome-focused” strategies – something many in the industry have been discussing for some time.
Chief executive Daniel Godfrey says the organisation’s vision has been given a polish after bringing the investment affairs division of the Association of British Insurers into its fold. Its message is now much more concise, he says.
“Making investment better. It’s not even an elevator conversation. I can say it when the doors are closing and get back to conventional silence.”
Ensuring members run money as responsible agents while still actually making a profit is its goal.
For several years a growing number of “outcome-focused” fund managers have lobbied the IA to create new sectors that make it easier for them to be measured against comparable funds.
That reached a head last month when data firm FE announced it was dispensing with the IA’s “inappropriate” sectors for such funds and had created its own.
Godfrey says the organisation had been watching the development of volatility and absolute return targeted funds but had to be sure not to act rashly on “trends”.
“There has been a lot of change in the funds space in the past few years,” he says.
Earlier this month the IA published a discussion paper on the best way forward as the number of “outcome-focused” funds lumped into the IA Unclassified sector approaches 200, with a combined £30bn under management.
“With the sectors there is a strong case for doing something around unspecified and outcome-oriented funds. But whatever you do, you want it to stand the test of time.”
The last IA sector to be launched was Targeted Return in 2005, which itself is the first in 10 years. That has 84 funds and £57.4bn under management, according to FE Analytics.
Godfrey says “it is impossible to say” if the sectors will be sorted out by the end of the year as, if the feedback vetoes the proposals, it will be back to the drawing board.
Meanwhile, the lack of consistency in the disclosure of costs and general information of funds has been a drag on advisers’ time, with the ability to compare hampered by having to travail total expense ratios, ongoing charge figures and idiosyncratic interpretations of the OCF. And then there are the funds that simply do not get past whacking an annual management charge alone on factsheets.
Godfrey would not say whether standardised measures could boost adviser productivity “but we want to give them a standardised basis for charges and other parts of clients’ investments. We’ve been working on it for a very long time.”
He says the OCF should be the only measure used, as the FCA said in guidance last year. The all-in cost of the OCF excludes transaction costs and performance fees, a stance the IA has reiterated in its latest disclosure discussion paper.
This month, the IA published its proposals for showing fund trading costs and the best way to calculate portfolio turnover rates.
Its central point was the necessity to separate explicit costs from implicit costs that affect returns but are not actually paid for in cash: spreads should be noted but not added to broker commission and stamp duty.
“If you were running your own portfolio and you had a book that recorded what your portfolio was at the end of the day, you buy M&S shares at 105p and there’s no change in the market and the offer is 103p, you would record a 2p loss,” he says.
“It’s useful information to know. There is a spread and the more you trade the more friction you incur.”
One-off costs, such as entry and performance fees, should be shown separately as well.
But all the thinking, discussion and effort that went into the IA’s disclosure methods could be for nothing if it is superseded by European regulation, Godfrey notes.
“A lot of people have thought hard about it over the past few years. We are really quite confident – in fact we’re certain – we’ve come up with the best thing we can.”
However, the “emotional rollercoaster” of Mifid may have started to level out as the IA team thinks the European Securities and Markets Authority guidance released in December may not be the torpedo they first feared.
The guidance talks about combining “known and unknown costs” to create a single cost figure – which the IA disagrees with – among other points. “From having a roomful of dispirited people when they first saw the Esma guidance, having read it through and listening to what the FCA has said, today we think the writing of the proposal has been done to ensure we can take what we’re doing forwards,” Godfrey says.
Meanwhile, the addition of the investment affairs division has given the IA a greater role in corporate stewardship that it hopes to grow, he adds.
An investor research and information service about all FTSE 350 companies goes out to an unspecified number of asset managers. Upcoming shareholder votes are filtered by importance and IA researchers give context and advice on how to vote.
Godfrey says the organisation has agreed not to talk numbers or issues raised publicly although he does say remuneration is big at the moment. “That’s one of the reasons we get an open door with companies because they know we don’t talk about it publicly.”
It has built on that service by developing a “board confidence index” that allows fund managers to rate boards and see how their views sit compared to peers; the information would be passed to the boards themselves. Again, that would be confidential, although a headline metric may be highlighted for the general public and media.
“I’d hope that if you look at all the things we’re doing you would see a link back to how we’re trying to make investing better, because if not we should really be asking ourselves why we are doing it.”
What is the best bit of advice you’ve received in your career?
Never argue with a pig. You get dirty and the pig just loves it.
What is keeping you awake at night?
My head, sleep and the pillow usually meet at the same moment.
What has had the most significant impact on financial advice in the past year?
If I was put in charge of the FCA for a day I would …
Beg Martin Wheatley to come back.
Any advice for advisers?
2012-present: Chief executive, the Investment Association
2009-2012: Communications director, The Phoenix Group
1998-2009: Director general, Association of Investment Companies
1994-1998:Marketing director for investment trusts and communications director for unit trusts, Fleming Investment Management
1989-1991: Head of sales and marketing, Laurentian Unit Trust Management
1988-1989: Product development manager, Mercury Asset Management
1985-1988: Marketing manager, Schroders
1982-1985: Life inspector, UK Provident