As two investment bodies change their fund classifications, Ian Smith looks at how schemes like Sony already communicate investment choice to members
The Association of British Insurers (ABI) and the Investment Management Association (IMA) have matched the names of their managed fund sectors to improve consumer understanding of what they are invested in.
Case study: Sony's investment comms
Sony UK pension scheme offers members one of two options for their retirement saving – named LifeChoice and FreeChoice – set out in its investment guide.
The first option is the default lifestyle fund, which allows members to set their retirement date and the speed at which they want to be switched out of risky funds. The second forces them to select from a range of third-party funds.
In September, the scheme published its first investment newsletter, which set out the performance of the various funds on offer against their benchmarks.
The newsletter began with a message from trustee chairman Ian Miller emphasising the members' personal responsibility for their investments and telling them to review their investment preferences at least annually.
Both associations now use the term mixed investments and tell investors the amount of equity exposure they will take on.
Schemes such as Sony and Bayer are already providing detailed, targeted information on investment funds to their members and others have been urged to follow suit.
Engaging people and assisting them to make appropriate investment decisions will help them achieve the retirement income they need.
Sony UK's pension scheme provides a simple choice to its defined contribution members (see box right) about how much control they want to take over their investments.
For those who are engaged enough to choose their investments, the scheme begun to provide detailed performance updates in a regular investment newsletter to keep members up to date.
They are also provided with a table that sets out:
The fund's full name and charge;
What it invests in;
The aim of the fund;
The kind of member it would be suitable for – such as a person far away from retirement;
Its exposure to certain risks such as inflation and market volatility.
Improving your investment communication
Schemes need factual titles coupled with good background information explaining the funds in order to adequately serve members as investors, according to industry groups.
These titles should point to the exposure the fund has to risky assets such as equities to help the investor manage the risk of their investment.
But communication consultants have warned schemes they should not overload members with technical information. This could lead to much of their effort in designing the investment setup being wasted.
Steve Sykes, consultant at Shilling Communication, said schemes should not risk putting off the majority of members, who do not want to spend too much time on investment, with an overloaded title.
The upfront information should be short, sharp and factual
"They don't really want to know all of the ins and outs," he said. "That shouldn't be the upfront information. The upfront information should be short, sharp and factual."
It is more important for schemes to get members to consider their level of risk in terms of their expected retirement income.
Shilling worked with the Bayer pension scheme – on behalf ot the UK and Irish employees of the German pharmaceutical company – to design profiles of hypothetical members making certain investment choices based on their circumstances.
Sykes added: "There was some really good feedback. It helped people to make a decision on what they should be doing."
Helpful fund names
Last month, the IMA brought its managed fund sector names into line with the ABI to meet consumer demand on information.
Consumer research from both organisations found investors wanted simple information about minimum and maximum exposure to equities.
The IMA has replaced its previous descriptors for its cautious, balanced and active managed funds with the title ‘mixed investment’. It will also give information on the exposure to shares.
We took a step back and thought, what would work for consumers?
So, the fund formerly called IMA Balanced Managed is now called Mixed Investment 40-85% Shares.
The mixed investments typically include company shares, bonds, cash and commercial property, in which managers can use a range of strategies to invest.
Jane Lowe, director of markets at the IMA, said the key elements for labelling any fund were factual descriptors and supporting information.
She said: “It always requires that they go away and do their own research.”
“We took a step back and thought, 'what would work for consumers?'” she said. “We decided it would at least help them if there was consistency.”
But the focus on equities is not necessarily helping consumers to understand all the risks they are taking on.
Lowe added: “They don’t say anything about other risk assets."
Whatever name the scheme chooses, it is vital to double-check they are the same across all technology and communication.
Sykes added: "I've seen situations where the names of funds between the platform and the [investment] guides haven't been consistent."
