Investment Association concludes review of outcome-based fund sector dilemma
The Investment Association has today proposed a simple and clear approach to the problem of housing the growing ranks of outcome-focused funds in its sector scheme.
The IA is to launch a new Volatility Managed sector to accommodate the largest group of funds in the IA Unclassified sector with a common characteristic of targeting a client's attitude to risk set out in terms of volatility.
The sector launch was chosen over a complete reorganisation of the sectors, mooted when the issue was first formally consulted on last year, in the belief that the new sector solution will retain the scheme's current clarity for consumers and their advisers.
In addition, it was concluded that the IA sector 'schematic' (which shows how sectors fit together), would be better represented by a matrix rather than a tree structure. This new matrix approach ensures that the schematic remains clear and fit for purpose and is based on two dimensions - a targeted primary outcome and the eligible assets that can be used to deliver that outcome.
The new sector matrix can be viewed here.
The new Volatility Managed sector will have a high hurdle of transparency for potential constituents, when it goes live in November. Funds will be required to publicly disclose that the fund is managed with the intention to deliver a volatility or risk outcome as well as provide advisers and consumers with information on how volatility is measured - including the time frame over which data is calculated.
The IA is now calling upon its members to elect the funds that they believe fit this new definition. The IA's Sector Committee will then review this selection of self-elected products to ensure they meet the new requirements.
This is the first step in the IA's work to reflect the market's drive towards outcome focused products. Further work on the sector may take place once the population of funds is identified.
Galina Dimitrova, Director of Capital Markets at the IA, said:
"Changes to the distribution chain, new regulation and the introduction of the pension freedoms have seen an evolution in the products offered by the asset management industry.
"The IA sectors always look to evolve alongside the universe of investment funds available to investors, and the launch of the Volatility Managed sector is an important step to grouping more outcome focused funds together for the benefit of consumers and advisers when making investment decisions.
"We will continue to work with our members, advisers and consumer groups to ensure that the sector definitions resonate with the investment funds the industry offers."
