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Rob Reid: IMA’s renaming is of absolute zero use

Rob Reid glasses 150

When I left school my initial intention was to be a civil engineer, leading me to study topics that after I moved into this sector I did not expect to use anytime soon.

The mathematics was to a good level and so when correlation and regression became buzz words I had an attack of déjà vu; until this week mechanics of fluids had not raised its head but then the Investment Management Association provided the opportunity.

Now I have to admit that I have been critical of the IMA in the past; albeit under its previous leadership; and I had hoped that the arrival of Daniel Godfrey would herald a clear-out and a more common sense and strategic approach. So I would like to think that this week’s announcement must have been in the pipeline before his arrival.

I refer to the decision to rename a sector currently referred to as the “absolute return sector” which will from now will be known as the “targeted absolute return”.

I do hope that no one was paid for this. Given the return delivered by the majority of these funds “absolute crap return” would seem more representative.

The IMA needs to understand that the rating of funds by sectors is past its sell by date. Portfolios and not funds need rating or better still mapping.

If they truly want to contribute they can start by lobbying for a more sensible content and layout for KIIDs. All these useless pieces of paper do is to add to postage costs as their communication value is absolutely zero.

Anyway let me explain where mechanics of fluids fits in, the temperature scale used is not centigrade or Fahrenheit it is Kelvin, where absolute zero is minus 273.15 centigrade. So if we rename the sector the “Absolute Kelvin Return Sector” this could then accommodate the funds that fail to perform as zero would be nearly 300 points to the left.

Earlier this week I attended a session on social investment (not an investment in pubs) where people can invest to communities’ benefit whilst getting a modest return or in some cases next to nothing in terms of growth.

The FSA was there and it regrettably reminded us that these investments were fine if those investing are high net worth or are professional investors. This idiotic situation stems from the removal of caveat emptor.

What we need is to be able to record the level of a client’s financial awareness. I am not suggesting exams but we do need some way of determining their ability to comprehend what we are communicating.

Labels that confuse help no one. The news that schools will introduce financial education is fine but what about those people who have already left?

Auto-enrolment will bring this to the fore and the more imaginative we are in reporting or general communications the better it will be.

The IMA is yet to learn that you can not categorise funds in sound bites but you can in terms of risk and that is what matters to most people. If the fund is too fast moving to get a fix on the risk then it is unlikely to be acceptable for retail clients.

We all learn things that seem useless at the time or soon after but in oh so many cases something sticks and makes the difference.

Just as I used the mathematics and the mechanics of fluids later on the life I have also used the skills I learnt in structural steelwork where you acquire the techniques of making something at the minimum cost but the maximum in terms of safety.

Robert Reid is managing director of Syndaxi Chartered Financial Planners

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Comments

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  1. It’s not “centigrade” (hasn’t been called that since 1948). It’s Celcius.

    Actually, if you want to be a stickler, there can be tiny variations between the scales at extreme ends, but a modern day civil engineer would also refer to Celcius.

  2. Speaking as someone who recently posted suggesting a better name for this sector would be the “Keep Your Fingers Crossed” or “Here’s Hoping” sector, I confess Rob’s suggestion of “Absolute Crap Return” is much better than mine. It has a certain ring to it…

  3. @IFA

    If you’re going to be pedantic and correct someone at least get it right. It’s ‘Celsius’ not ‘Celcius’. Not sure where you get 1948 from either. The BBC weather team were using centrigrade until 1985 – were they really that far behind?

    On matters that matter, Rob makes some excellent points. Auto-enrolment presents an opportunity to involve clients in investment decisions but the current approach to suitability (i.e. Rob’s point on removal of caveat emptor) militates towards a further dumbing down and the adoption of safe but wholly uninspiring investment choices. Add in the RDR and you combine this with increased non-advised choices by clients who would have otherwise sought advice.

    The way the FSA is approaching suitability is having a real effect on the investment decisions made by advisers and managers. The space for innovation is being squeezed. Investment decisions are made as much by reference to what is perceived as acceptable to the FSA (and more importantly FOS) as to the merits of the investment itself.

  4. Celsius came from a conference in 1948 but many still stick to Centigrade.
    This piece highlighted the use of inappropriate terms incidentally why Centigrade was dropped by previously mentioned conference.
    We need to create a market where caveat emptor can once again protect the professional from the claims of those with self inflcited memory loss, that was my aim if I missed by DEGREES I apologise?

  5. p@Rob Reid we defended our only ever complaint which came via a solicitor by covering the issues of selevtive memory loss by recording all contact with the former client as mp3 files. The client had forgotten to tell the solicitor we’d agreed to record all meetings so the complaint was quickly dropped.

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