How has move from managed changed fund selection?

This article is part of
‘Balanced Managed’ funds - February 2014

Dozens of pieces of information are involved in an adviser selecting the right funds for his or her clients.

It could be age, capacity for loss, how many children they have or any other aspect of their financial and family circumstances.

The financial services industry’s overseers try to make sure communication to advisers is relatively standardised, certain information is included and misleading language about ‘promised’ returns is avoided.

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The success of this will be taken with relative degrees of scepticism by advisers, but the industry does regularly change its help and guidance in a bid to keep up with the times – and of course assist advisers with their investment choices to try to remove some of the burden.

One of the recent changes was the naming conventions of the multi-asset IMA sectors, now known as Mixed Investment sectors.

The IMA made the change to the names amid much hubris from the industry. The trade body had at times found itself criticised for the use of ‘Cautious’, ‘Balanced’ and ‘Active’ as sector names because of the potential for these to mislead clients.

After all, what is ‘Cautious’ and weren’t all the funds being ‘actively’ managed?

So it decided, along with the Association of British Insurers, to adopt a new naming convention for them.

Nicola Kembey, IMA head of sectors, says the name changes “successfully provided clear, jargon-free names, and aligned the IMA and ABI sectors in an important part of the long-term savings market”.

She adds that the decision was “informed by qualitative and quantitative consumer research as well as consultation with market participants, including IFAs”.

At the time of the change in 2012 reaction was mixed, with star managers including Jupiter’s John Chatfeild-Roberts calling the changes “a lot of rubbish” driven by a fear of potential law suits over losses. Investec Asset Management’s Alastair Mundy stated his flagship Cautious Managed fund would not change its process in spite of it facing more restrictions than when it was housed in the previous guise of the ‘Cautious’ sector.

Bill McQuaker, head of multi-asset at Henderson, showed a bit more sympathy by acknowledging the “almost impossible task” that it is to group a wide range of funds in a clear and useful way.

The verdict

But with the changes now well bedded in – as well as a fourth sector, 0-35% Shares sector, which was subsequently launched – has anything changed for advisers? Do the sectors still provide a use or do advisers see them as merely as a way of showing clients relative performance?

Kevin Morgan, managing director at Consilium Financial Planning, says the sector changes had not helped.

“Equity exposure has always been a proxy for risk,” he said, “but risk is and always has been all about downside not the upside. It is incumbent on the adviser to inform/advise the investor of the equity component and attendant risk factors regardless of the name/term given to any particular sector.”