Graham Bentley, head of UK proposition at Skandia, criticised the review’s outcomes, labelling them "a farce".
“Renaming the managed sectors from Active, Balanced and Cautious to A, B and C is quite frankly a farce. Everyone knows what A, B and C stand for so will simply continue to use the old names verbally.”
“However, the whole exercise has missed the point which is that consumers are confused by individual fund names that imply a level of risk that does not match the real risk level of the fund,” Bentley adds.
He cites Skandia research showing 81% of advisers expected funds in the Cautious sector to have a risk rating of 4 or below out of 10, and contrasts that with Skandia’s analysis of the IMA sector itself – which shows that 71% of funds have a score of 5 or more.
Gary Shaughnessy, UK managing director at Fidelity International, says the new sector definitions are “meaningless and actually increase the opacity for investors”.
“To say we are disappointed in the outcome to this review is an understatement […] this seems like a retrograde step and we urge the IMA to think again”.
But others have suggested that increasing opacity may not be such a bad idea: Distinction Asset Management’s Patrick Armstrong says that ranking a fund “should not be done versus an increasingly arbitrary peer group”.
“We believe using peer groups to select funds is nonsense anyway […] instead the success of a fund should be judged in terms of the return it generated for the risk it took, and whether the risk it took is in line with its policy and objective,” he says.
Informed Choice managing director Martin Bamford describes the alphabetical system as “a really positive move from the IMA”, suggesting the move would force investors to “dig deeper” but adding that the changes should be extended to fund names themselves.
“Fund managers should be required to rename their funds, to avoid the risk of misleading investors,” Bamford said, writing on the Informed Choice website.
