Press Release

IMA calls for abolition of reduction in yield requirement

30 September 2008

Responding to the Financial Services Authority's (FSA) consultation paper on Reduction in Yield (RIY), the Investment Management Association (IMA) opposes proposals to require authorised funds to continue to publish reduction in yield information. IMA believes the most effective action would be to abolish the requirement as it brings no apparent benefit to consumers and is potentially misleading when applied to funds.

Commenting, Julie Patterson, Director of Authorised Funds and Tax at IMA said:

"RIY is not a clearly understood measure of the cost of investing. It is calculated over fixed periods of time so it will generally not be the same periods over which the consumer wishes to invest. Also, the calculation requires assumptions to be made concerning growth of the fund and how long the investment is held. It can therefore lead to a false expectation on the part of the consumer as to the actual performance of the fund.

Neither does it reflect the reality of the funds market by not allowing the calculation to take into account discounts applied to initial charges and the rebating of trail commission, both of which are common in the fund management industry. This, too, makes the calculation inaccurate and misleading.

Moreover, it is not a requirement for European funds which are marketed into the UK and which are a growing part of the UK funds market place.

The majority of our member firms will undertake an annual review of their ‘Simplified Prospectuses' in early 2009. The FSA should abolish the requirement by the end of this year so that work is not carried out unnecessarily."