Increased risk will trigger fee-waiver for Allianz funds

Allianz’s managing director Nick Smith has pledged to waive the annual management charge (AMC) on any of the group’s four newly launched funds that have their risk profile re-categorised.

Financial profiling firm Distribution Technology has assigned the funds – named RiskMaster Defensive, Conservative, Moderate and Growth – respective ratings of 4, 5, 6 and 7 on a risk scale of 1 to 10 and should any of these funds move categories, Allianz would then waive the AMC for three months, up to 0.75 per cent.

Smith says this decision was made as Allianz wanted to put itself in IFAs’ shoes.

"Research from AllianzGI’s behavioural finance team shows that investors’ aversion to losses is twice as great as the pleasure they get from an equivalent gain. In a recent survey we found out that risk-management is now as important as performance for IFAs when choosing a fund for their clients."

"One thing that advisers are challenged by is that funds can move from one risk profile to another. That is why I gave the promise to waive the fee."

Smith says that funds’ ability to steadily take on risk through their underlying investments is why he believes the IMA’s mixed investment sectors provide poor guidance to IFAs when selecting funds based on volatility.

He points to research that shows enormous disparities between the most and least volatile funds in the IMA Mixed Investment sectors.

Data from FE Analytics supports this view and shows that in the IMA Mixed Investment 40-85% Shares sector the most stable fund, CF Miton Special Situations, has a volatility of 4.18 per cent, while the most volatile, WDB Assetmaster Balanced, scores 15.55 per cent.

The disparity is even more pronounced in the IMA Mixed Investment 20-60% Shares sector: its most stable fund, Neptune Cautious Managed, has a volatility of 3.54 per cent, while the most volatile, Invesco Perpetual European High Income, scores 15.23 per cent.

The new RiskMaster funds will go into IMA Specialist, which may come as a surprise to IFAs as they seem an ideal fit for the Mixed Investment sectors. Smith says this is due to restrictions on equity holdings but claimed: "The IMA acknowledges discussion needs to be had on this and has promised that over time if there are enough similar funds they will create a new sector with these in mind."

Tim Cockerill, head of collectives research at Rowan Dartington, says that while there have always been problems with the parameters of the Mixed Investment sectors, he is sceptical about Allianz’s pledge to waive charges.

"Without knowing the ins and outs of it all, it does sound a bit like a marketing ploy," he commented. "It’s not too difficult to stay within volatility bands unless you get enormous convulsions in the markets and volatility spikes for everyone."

"It could just be a ploy to help investors take their eyes off what is important when choosing a fund, which is: how is it managed? Who manages it? What and where is it invested in? Looking at all these things gives you a better idea of whether the fund is suitable for you."