Creation of the new IA Volatility Managed sector

The FCA background

Increasingly, the regulatory environment is requiring advisers to focus on the appropriate outcomes for their clients when selecting their investments and being able to monitor and compare those selections over time as client needs change. This is not a passing fad, evidence of which is that the FCA has this as one of its central principles. The thinking behind this is that the best outcome for the investor can only be achieved by focusing on their goals rather than ‘returns at all costs’.  This requirement has been further heightened by changes to the pensions regulations, the growth of defined contribution schemes and the emergence of default funds as the majority option.

Why launch something new?

Our focus with our multi-asset funds is to try to point consumers towards taking advice before they make a choice. To this end, we are unsure as to whether consumers use or are even fully aware of the sector classifications, relying mainly on their advisers, where applicable, to guide that filter. However, we welcome the Investment Association’s latest sector launch, the IA Volatility Managed sector and with it the introduction of a matrix which now allows advisers and their clients to view all sectors by not only their traditional asset structure but by the intend outcomes of the funds within them. It becomes their informed choice.
Hence the creation of the new sector for multi-asset funds which are managed to specific risk and return targets has a clear and distinct place, separate from the traditional ‘mixed’ sectors where the focus is on whether or not a competitor has delivered higher returns and not based on the funds achieving their outcome.

What does it do for the future of multi-asset funds and ours in particular?

We applaud the clear and tight definition used, especially given the funds in the sector will have wide ranging outcomes, operate across the risk spectrum and have diverse strategies. It is particularly relevant that the definition explicitly outlaws peer group comparison through sector and quartile rankings. Indeed if managers are allowed to use quartile rankings the funds will rapidly assume the highest levels of risk available in order to deliver the best performance rather than a focus on achieving an investors’ desired outcome. The initiative takes us a further step towards achieving our target of getting the market to focus on matching a client’s goals with outcome targets and by implication, offering solutions that are not governed by asset allocation structures. Otherwise short-termism will persist from a client perspective and focus purely on performance from a fund manager perspective will inform their short-term fund management behaviour.

We have elected to have our four Rathbone Multi-Asset Portfolios transferred into this meaningful classification from the growing bag of miscellaneous and ‘unclassified’ funds in the sector of that name which is no help whatsoever to anyone. It is very encouraging that 10 firms and 80 funds are represented at launch on 3 April 2017.