Plans by the Investment Management Association (IMA), a UK trade body, to change the names of its managed funds sectors have come under more fire.
Skandia says there is a danger that investors will continue to be confused by misleading fund names.
The renaming of the active, balanced and cautious sectors to Managed A, B and C is a step in the right direction but the real problem is individual fund names that use descriptors such as cautious, defensive or balanced, said Graham Bentley, head of UK proposition at Skandia.
Fund groups should be banned from using descriptions in their fund range that could obscure the amount of risk the investor is taking by investing in that fund. Most consumers pay little attention to what sector their funds are in so it is the individual fund names where the risk of confusion lies.
Research by Skandia shows that 81% of financial advisers expected funds in cautious sector to have a risk rating of 4 or below out of 10, with 10 being highest risk. Yet analysis of the IMA cautious sector using Skandia’s Managed Fund Analyser shows that the vast majority of funds (71%) have a score of 5 or more and some of them have the highest risk scores of 9 or 10*. Any of these funds that are labelled cautious or defensive could be misleading to investors.
Bentley says: “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.”
He added: “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. As a result consumers will continue to be confused and investment sectors remain an industry enigma with little relevance to the consumers the industry is trying to serve.”
Skandia joins Fidelity International in criticising the review.
“To say we are disappointed in the outcome to this review is an understatement,” said Gary Shaughnessy, UK managing director at Fidelity International recently. “The IMA has said that it is important that these sectors are properly understood by investors, but in our opinion the new sector differentiations are meaningless and actually increase the opacity for investors.”
©2011 funds europe