By Jenne Mannion The FSA is looking at how to add risk ratings to investment fund sectors as part of...
By Jenne Mannion
The FSA is looking at how to add risk ratings to investment fund sectors as part of its comparative tables, the blue print of which was completed last week following industry consultation.
The FSA, which will release the tables in the first half of 2001, has revealed its plans to provide impartial comparative data on personal pensions, endowments, investment bonds, unit trusts and Isas on the internet.
The tables will also allows for general guidance on issues such as risk. The guidelines will provide a basic assessment of product types, for example noting a unit trust has higher risk than saving money in a building society.
The authority said it is also looking at making this more specific by placing a risk assessment on asset classes. It has no plans to develop risk assessments for individual funds.
The tables will list the comparative price on products, over the short term and long term. The way that this is delivered will vary according to the type of products.
For unit trusts the tables will show reduction in yield over three and 10 years. This relates to what the investor will make after three years and 10 years, assuming 7% pa growth, and all costs are taken into account.
Clare Arber, communications manager for Autif, said: "This is not considered ideal, something more along the line of total expense ratios would have been more useful for investors."
The tables set out indicators for a number of products types such as range of funds, sales and advice, flexibility, and whether they are up to Cat or stakeholder standards.
The sales and advice indicator will provide information such as the available channels of sale, and whether advice is included in the price.
The flexibility indicator, relates to products with regular payment policies or regular savings and focuses on the level of flexibility if for example there is the need to stop or reduce premiums or payments, or in the event of early retirement or paying off a mortgage.
As well as stating yes or no to factual indicators, information will be provided on the costs involved in taking up these options.
Paul Campbell, manager of the comparative unit at the FSA, said the tables aim to provide people with information which is relevant in making the best decisions. He said because past performance is not a guide to future performance, it is irrelevant to include this data in the league tables and that there is a risk consumers could mis-buy on the basis of such an FSA indicator.
Jason Hollands, deputy managing director at Best Investments, applauded the move not to publish past performance data.
He said: "Past performance is a very bad way of picking the best performers going forward. If the FSA comparative tables did publish past performance, these details would become irrelevant if there was a change of fund manager."
He said there is no harm in comparative tables, which cover other factors, like price, flexibility and risk.
Autif, however, would have preferred it if there was some acknowledgement of past performance, along with advice and analysis included in the tables.
Paul Smee, director general at AIFA said the tables will not put advisers out of business.
He said: "All the evidence indicates that people do not base their investments on the bald advice that they get out of tables, but will still opt for a more value added service through IFAs when making their investments."
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