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IMA sector changes miss the point and do not go far enough, says Skandia

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The Investment Management Association’s changes to the names of its managed sectors do not go far enough and there is a danger that investors will continue to be confused by misleading fund names, says Skandia.

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.  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.
 
Graham Bentley (pictured), head of UK proposition at Skandia, 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.  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.”

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