UK - Comments about underperformance stock-picker funds in the Sandler Report has sparked criticism from the Investment Management Association (IMA).
The review by Ron Sandler - former chief executive officer of Lloyd’s of London and chief operating officer of NatWest Bank - aims to simplify savings for the retail market by cutting costs, introducing greater tax harmonisation, and by slashing red-tape. But Sandler also recommended that consumers avoid stock-picker funds - and more ‘complex’ savings vehicles such as mortgage endowments, and controversial with-profits funds - in favour of ‘cheaper’ index-tracking products.
In a statement Sandler said that the retail market seemed to have a high proportion of actively managed funds, compared to the institutional market, and that the performance of unit trusts did not justify their charges since they “significantly” under-performed the market.
The IMA said that it broadly welcomed the Report, but IMA chief executive Dick Saunders struck out at comments about underperforming active funds as “illogical”.
He said: “The average performance of all investors is going to give the markets - lest the cost of investing. The evidence is that the cost of investing is 2.5% a year - including stamp duty and management costs - so on that basis the actively managed unit-trust will underperform by 2.5%. However, what that is not due to is unsuccessful active management.”
Saunders pointed to Sandler’s endorsement of stakeholder products: “The one area that he [Sandler] is making a recommendation of the type of fund to use he's not suggesting an index-tracker.”
Separately, the National Association of Pension Funds (NAPF) said that it too welcomed the report as an “important first step towards pensions reform”
NAPF chief executive Christine Farnish said: “Ron Sandler has identified practical ways of ensuring more people have access to a range of simple, “non-toxic” savings products... . We share [the] clear distaste for excessive red tape, and welcome the fact that his Review shows signs of close collaboration with the simplification reviews currently being prepared by Alan Pickering and the Inland Revenue.
Ron Sandler was invited in June last year to lead the review. The findings - which covered £10bn assets in investments - will be considered in September by Financial Services Authority (FSA) and the Treasury who will look to implement it next year.
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