The IA’s ‘C’ Conundrum – SCM investigates
Date Published: 19 August 2016
For years we have suspected that the Investment Association (IA) has been bereft of what we call the 3 C’s — Common sense, Clarity and being Consumer Centric; particularly in the darkest days of the IMA when it found it impossible to logically analyse any set of data, unless it was seriously biased and therefore portrayed their members in a good light.
It now appears that it is actually the brain of the IA which is faulty, and has collapsed under the weight of something, psychologists refer to as ‘cognitive dissonance’.
Cognitive Dissonance or Denial and Deceit
In psychology, cognitive dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time; performs an action that is contradictory to one or more beliefs, ideas, or values; or is confronted by new information that conflicts with existing beliefs, ideas, or values.
For years the IA has protested that its members do put clients’ best interests first rather than last. It has also pretended there are no hidden fees whilst recognising the published cost numbers do not include numerous costs, that it will address excessive boardroom pay whilst knowing the pay of senior fund managers is out of control, and it has pretended high cost active fund management outperforms low cost passive when it knows that after costs, this is mathematically impossible over the long term. This cognitive dissonance (one might call it denial and deceit) has put severe mental pressures on the few grey cells remaining within the brains department of the IA.
The IA Brain Dysfunctionality Was Exposed on 9th August 2016
On the 9th August the IA produced a work of fiction dressed up as analytical research, entitled ‘Investment costs and performance – Empirical evidence of UK fund industry delivery’. This amateurish work of fiction attempted to illustrate how wonderful active funds’ performance was and how there were no hidden fees.
An investigation by us via our True and Fair Campaign and by a leading expert, discovered the IA report was fundamentally flawed and intellectually bankrupt. It must have been tough for the IA’s brain to cope with the faulty logic of pretending there are no hidden costs by adding back some of the transaction costs (not all of course) buried within fund accounts that few see in the first place i.e. which are hidden. Then it had to cope with data compilation so inept that even something as simple as the time periods are incomprehensible and random — the report says it’s analysis is from ‘From July 2012 To May 2015’ but the data tables are simply labelled 2012-2013, 2013-2014, 2014-2015.
It then transpires these periods are not calendar years or even all 12 month periods as the first period includes ‘annual reports’ that ‘date from 2011’ and the last period analysed is just 10 months. It must have been very stressful and time consuming having to artificially create performance data by annualising data when actual data did not exist for the time period under review, thereby creating illusionary performance. They even resorted to replacing the actual benchmarks for funds with a different benchmark when they did not have the data for the original benchmark. Of course any professional would have simply excluded data comparing a fund performance with a benchmark over a set time period if the performance did not actually exist for the entire period and/or the actual benchmark return was not known. Not the IA.
This shoddy report exposes the IA’s lacks of Cs — no Common sense, no Clarity and is never Consumer Centric.
Alan Miller — CIO, SCM Direct.com
Tel: 020 7838 8650
Please Note: Past performance should not be seen as a guide to future returns. The value of investments and the income from them can go down as well as up and investors may not recover the amount of their original investment.
SCM Direct is a trading name of SCM Private LLP which is authorised and regulated by the Financial Conduct Authority to conduct investment business.