Jane Lowe, director of markets at the IMA, announced the result of the sector review with the opening line of: “It is encouraging that the range of participants in the review supported the current structure of the classification scheme.”
She also explained that the process looked at various alternatives and “concluded after consultation with stakeholders that the existing architecture remains the most useful for advisers and consumers.”
Multi-asset investing
The reason this review has attracted so much interest is that it is the first time the IMA has tried to move away from simply asset-defined sectors – just as investors are starting to do the same as they move towards multi-asset, outcome-based propositions.
The Managed and the new(ish) Absolute Return sectors are the categories that are at the core of the review as the funds included in these sectors are – or should be – more focused on the outcome produced rather than the precise mechanics of their make-up.
The proposals do include marginal tweaks rather than structural changes with 31 of the 34 categories remaining untouched.
The tweaks are to the three Managed sectors that are to be renamed. Instead of Active, Balanced and Cautious Managed sectors, we will have to get used to Managed A, Managed B and Managed C though the IMA is at pains to say the use of A, B and C does not indicate the order of the risk/reward hierarchy across the sectors. That suggests that Managed A is not a replacement for Actively Managed, nor is B a swap for Balanced nor C for Cautious.
A fourth Managed sector is to be introduced – Managed D – and this will be the crux of the ongoing debate, via a consultation to consider whether this new category should include funds that are currently in the Absolute Return sector.
Customer focus
Let’s not forget what the sectors are for. As the IMA confirms, they are designed to “provide a means by which the industry’s products may reasonably be divided up for further analysis”.
The sectors are not the be-all-and-end-all for investors to make an investment decision but simply a guide to help them along what can be a fairly tortuous process.
The IMA review has resulted in nothing more than marginal changes to the sector definitions, and a greater emphasis on investors doing their own due diligence. In light of that, what needs to change, and change quickly, is how the IMA helps investors discover the next level of detail.
As Matthew Phillips, an investment director at Broadstone, said in an interview with Portfolio Adviser last week: “What you have to go back to is what the client actually wants. I have never had a client come off the street and say to me they want to outperform APCIMS, or the FTSE 100. If you ask them what they want, they want high growth, low risk and they don’t want to pay for it!”
Achieving that may be all but impossible, but the IMA report does make an attempt to aid investors’ further in their decisions, saying: “Investors may benefit from extra information or flagging on funds to help them make fund choices. The IMA will develop a plan to collect and make available further information through its website over the next 12 months.”
That is a start. Investors “will” benefit from this and it should, without doubt, be the focal point for the next stage of the review. The IMA has a shiny new website and hopefully it will now focus on how the site can best be used to help investors compare and contrast funds – with the emphasis on returns rather than asset classes.
All investors want to know is what options they have for investing their hard-earned money, the potential returns they can make and the potential risks involved. They don’t care what it is called, they care what it does. Now that the review into what to call the sectors is nearly complete, the next stage needs to be prioritised.
The IMA is asking for comments so please do get in touch with Nicola Kembey, head of sectors, by email at nkembey@investmentuk.org.
