The Association of British Insurers (ABI) has announced it is changing its ‘cautious’ and ‘balanced’ sector names.
This follows research that consumers find them too difficult to understand and potentially misleading.
They will be replaced with the name ‘mixed investment’ along with a clear statement of how much funds in these sectors can hold in equities.
Here at Informed Choice, we welcome this move.
Our own investment philosophy means that we avoid the use of these mixed- or multi-asset funds, instead populating an agreed asset allocation model for each client with suitable single-asset class funds.
This approach means that our clients retain much greater control over the degree of risk being taken within their portfolios.
Attaching the name ‘cautious’ or ‘balanced’ to a fund sector creates the problem that an investor will assume a certain level of risk being taken, when in fact the fund is taking far greater levels of risk than they would be prepared to tolerate.
Under current rules, life and pension funds in the ABI Cautious Managed sector can have a maximum equity exposure of 60%. Ask a typical cautious investor if they think that 60% of their portfolio in company shares is ‘cautious’ and you are unlikely to get a positive response each time you ask the question.
We feel that this is the beginning of the end for these confusing sector and fund names.
This move by the ABI will add to the pressure on fund management groups to think more carefully about the names they assign to their individual funds. It should also prompt the IMA to speed up the conclusion of their own review into sector names.
Investors need to look beyond sector and fund names to understand where a fund is really invested and how much risk it will take with their money.
Photo credit: Flickr/gagilas
