The Investment Management Association (IMA) is considering whether to scrap their ‘cautious’, ‘balanced’ and ‘active’ fund sectors.
Their review of the various managed sectors could also result in the Absolute Return sector being merged into a new managed sector.
It is being reported that one option is to replace these managed sectors with an alphabetical system – Managed A, B, C or D.
If it is carried out, this is a really positive move from the IMA and will go some way towards ending the confusion experienced by investors (and some advisers!) who feel that the name of the sector adequately describes the risk they are taking with their money.
By using the new alphabetical titles, investors would be forced to dig deeper to find out more about the sector they were considering and how this works.
It would stop investors from automatically assuming that a fund in the IMA Cautious Managed sector took a ‘cautious’ approach with their money.
However, changing the names of the managed sectors would not force fund managers to stop using the names ‘cautious’ or ‘balanced’ to describe their funds.
Fund managers should be required to rename their funds, to avoid the risk of misleading investors.
It would also stop some investment advisers from linking a cautious risk profile to a fund using the name ‘cautious’ without first taking the time to understand how much risk the fund manager is really taking.
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