Lords review proposal to scrap IMA sector classifications

A draft paper written by the Centre for Policy Studies that is being reviewed by members of the House of Lords calls for the Investment Management Association to stop labelling funds, warning that the trade body is “assuming a quasi-regulatory role”.

The paper, which is in draft stage and is due to be published in full in early June, also proposes that the IMA disclosure tables should be expanded to include not only the total expense ratio but also the cost of investment.

Michael Johnson, author of the paper and research fellow at the Centre for Policy Studies, warns in the draft that the IMA may be “on its way to assuming a quasi-regulatory role akin to that of the ratings agencies”.

According to the paper, the IMA’s classification of retail funds is at the root of the Arch Cru fund crisis.

This echoes the words of Financial Services Authority supervision director Clive Adamson, who told FTAdviser earlier this week that advisers relied too heavily on IMA categorisations when advising on Arch Cru funds.

In a letter to FTAdviser, Mr Johnson said: “The labels can be debated, but the key question is why has the IMA assumed a role well beyond what is considered a conventional remit for a trade body?

“Financed by the fund management industry, why is it involved at all in the categorisation of funds?

“It should not be, not least because as a trade body representing the vested interests of its members, it lacks a common purpose with savers and investors, as demonstrated by the Arch Cru debacle.”

A spokesperson for the IMA said: “The IMA sectors are not and never have been risk ratings. The sector definitions have always been plain for all to see on our web site.”