Almost immediately Alan Miller, chief investment officer at SCM Private, responded to an article on Portfolio Adviser’s website writing: “Well done the IMA. It took you over nine months and countless idiotic proposals before common sense prevailed and you reluctantly simply copied the earlier IBA (sic.) guidelines. Please can someone urgently take away your fund classification powers as you are clearly totally incompetent.”
Too easy
Another senior figure, when talking a week or so ago about the possibility of the IMA introducing the definitions they now have, described them as a “cop out”.
“Investment, especially now, is all about risk mitigation,” he said, “so the key is articulation as well as what the risks and returns are. Investors need a realistic expectation of what they might lose as much as what they might gain.”
Unfortunately the debate hasn’t finished as this latest naming convention isn’t the right one either and won’t be until the IMA – and the Association for British Insurers whose definitions the IMA has copied – give up on their insistence on defining the mixed asset sectors by their asset allocation.
Investors are more concerned with what they get out of an investment – in terms of what they might lose as well as what they might gain – as much as the mix of any particular asset class/product/vehicle they might actually put their money into.
This is the role the IMA can play, to ensure that the end investor knows this, largely quantifiable, statistical information.
The role of the intermediary and fund house is to make sure the investor understands the asset allocation, the relative risks of each and how they work when blended together in a mixed asset proposition.
Too difficult
In the IMA’s report announcing the name changes, it said: “The majority of UK active investors said the sector name was not the most important factor in deciding what to invest in, but a quarter (28%) have used the sectors to help them reach their final investment decision, so the sector names need to act as a useful signpost.”
So more than 70% of active UK investors don’t use the IMA sectors to help make an investment decision while “the majority” of the same group doesn’t care what they are called.
There is the danger that we are spending too much time on this whole Managed Sector review and it might actually be impossible to find a set of definitions that keeps all the interested parties happy. But while wealth managers and fund management groups care a great deal that funds sit alongside the most relevant peer group, it is essential that we get this right and a category that is called something as clumsy as ‘Mixed Investment 40-85% Shares’ can’t be right.
Something else that needs to be right is that the IMA sector definitions are adhered to by the fund groups and that any that are found not to fulfil the definition are thrown out of the sector, maybe even put into a ‘Naughty Step’ category for at least two consecutive quarters…but more of this later.
