Multi-asset ranges hold off shedding vague risk labels

FCA platform market study criticised terms like ‘balanced’ and ‘cautious’ in fund branding


BMO Global Asset Management is the first group to rename its multi-manager funds following the Financial Conduct Authority’s concerns about confusing naming conventions, but few other asset managers appear to be following suit.

This week, BMO GAM announced the Multi-Manager Lifestyle range will ditch its current branding and adopt numbers to indicate risk profiles, which Distribution Technology has rated 3 through to 7. The funds have also been moved into the IA Volatility Managed sector.

BMO GAM renames Lifestyle and Navigator ranges

Multi-Manager Lifestyle Range
F&C MM Lifestyle Foundation FundBMO MM Lifestyle 3 Fund
F&C MM Lifestyle Defensive FundBMO MM Lifestyle 4 Fund
F&C MM Lifestyle Cautious FundBMO MM Lifestyle 5 Fund
F&C MM Lifestyle Balanced FundBMO MM Lifestyle 6 Fund
F&C MM Lifestyle Growth FundBMO MM Lifestyle 7 Fund
Multi-Manager Navigator Range
F&C MM Navigator Boutiques FundBMO MM Navigator Boutiques Fund
F&C MM Navigator Distribution FundBMO MM Navigator Distribution Fund
F&C MM Navigator Moderate FundBMO MM Navigator Cautious Fund
F&C MM Navigator Progressive FundBMO MM Navigator Balanced Fund
F&C MM Navigator Select FundBMO MM Navigator Growth Fund

In July, the Financial Conduct Authority’s (FCA) interim platform market study argued ambiguous labels, which as ‘cautious’ or ‘balanced’, could encourage investors to make false comparisons between products or to invest in portfolios with a different risk level than they might expect.

But other fund managers appear to be holding back from making name changes on their risk-rated multi-asset ranges.

No rush to rename fund ranges

But, few other fund groups are likely to follow in BMO GAM’s footsteps anytime soon, says Bella Caridade-Ferreira (pictured), CEO at Fundscape, because they are waiting for more clarity from the regulator.

“To prevent having to change it all again if the FCA don’t approve, I think other fund groups are going to wait and see what the FCA group are going to do,” Caridade-Ferreira says.

JP Morgan Asset Management, Janus Henderson, Jupiter and Blackrock all refused to comment on whether they would be making changes to their multi-asset ranges in light of the FCA’s concerns.

Existing brand recognition may hold some asset managers back, says Amalia Nunez, investment director at First State Investments. They would not want to rebrand their current UK offering First State Diversified Growth Fund because they consider the term DGF well established in the UK.

Navigator range maintains risk labels

While BMO GAM has adopted numbering on the Lifestyle range it maintains the descriptive risk labels on its Navigator range, something Caridade-Ferreira questions.

“I am a little bit surprised they haven’t gone the whole way with the navigator range and done the same thing, particularly when you have funds like ‘boutique’ – what does that even mean? It doesn’t tell anybody anything,” she says.

“Distribution, cautious, balanced and growth – I think BMO could have done a little bit more on that. But I am glad that with the Lifestyle funds that they’ve taken the numbers approach because that makes it much clearer.”

Nunez says numbering seems like a good way to obviously reference the funds’ objective in terms of targeting different types of risk. First State agrees with the need for more clarity as stated by the regulator, she says.

Fund names are meaningless to retail investors

But, Clive Waller, managing director at CWC Research, says funds are generally recommended by an adviser or D2C platform therefore the “names mean little”.

CWC Research worked with The Langcat to measure performance of risk rated funds over three years, Waller says. “They pretty much performed to description, albeit, it’s early to test properly.”

Risk rating is a young science and the end of the 30-year bond bull market makes risk rating more cloudy because defensive fixed income assets now look expensive, he says.

However, Mike Barrett, consulting director at the Langcat, welcomes BMO GAM’s name change.

“By moving to numbers rather than names, BMO GAM is at least trying to align its funds to specified risk profiles which will certainly make things clearer for advisers and retail investors prepared to do their homework, but as a whole the industry needs to do more work on making comparison easier by ensuring that funds provide clear and consistent information to investors.”

Barrett says similar named funds can vary between investment houses in terms of the risk they take, which is especially confusing for retail investors.

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