The latest update on mutual fund risk volatility guidelines has been released by the Investment Funds Institute of Canada (IFIC) – but it remains to be seen how long they’ll actually be in practice
The latest update on mutual fund risk volatility guidelines has been released by the Investment Funds Institute of Canada (IFIC) – but it remains to be seen how long they’ll actually be in practice. The voluntary guidelines, which many fund managers rely on to measure and report risk, may soon be usurped by the official implementation of the Canadian Securities Administration’s (CSA) standardized methodology.
Perhaps IFIC has considered this pending change of the guard - while they introduced changes last year for short term volatility measures, the latest iteration doesn’t include any sweeping change/
“It’s really just nothing more than a modest update or fine tuning of the standards they created a few years ago,” says Dan Hallett, vice president and principal at HighView Financial Group.”It’s making sure the volatility rankings are current and for funds that are actually new or have very limited history, like under three years, they lay out, depending on the category, a guide to the standard deviation for each category and that helps to map the specific risk.”
He adds that while IFIC’s standards face “extinction”, the transition will likely be smooth for mutual fund managers – except for those currently critiquing the proposed risk standcard.
“The IFIC standard and what the CSA has proposed are pretty similar, so I don’t think there will be much of an uproar if the CSA implements the rule as it’s proposed – they’ve been taking suggestions from the industry,” he says “And the mutual funds industry generally supports what’s being proposed - then there’s a small contingent, of which we are a part, that doesn’t like what’s being proposed.”
Hallett says that current proposed methods are too subjective, leading to potential confusion for investors. “Even the IFIC methodology is voluntary, and even if they follow the methodology, they can always use their judgement to bump up or down a risk category if they see fit to do so. There’s a lot of subjectivity involved,” he says. “They’ve released an update, in my mind it’s still a weak method of assessing fund risk. It can be a lot better and simpler than it is.”
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Perhaps IFIC has considered this pending change of the guard - while they introduced changes last year for short term volatility measures, the latest iteration doesn’t include any sweeping change/
“It’s really just nothing more than a modest update or fine tuning of the standards they created a few years ago,” says Dan Hallett, vice president and principal at HighView Financial Group.”It’s making sure the volatility rankings are current and for funds that are actually new or have very limited history, like under three years, they lay out, depending on the category, a guide to the standard deviation for each category and that helps to map the specific risk.”
He adds that while IFIC’s standards face “extinction”, the transition will likely be smooth for mutual fund managers – except for those currently critiquing the proposed risk standcard.
“The IFIC standard and what the CSA has proposed are pretty similar, so I don’t think there will be much of an uproar if the CSA implements the rule as it’s proposed – they’ve been taking suggestions from the industry,” he says “And the mutual funds industry generally supports what’s being proposed - then there’s a small contingent, of which we are a part, that doesn’t like what’s being proposed.”
Hallett says that current proposed methods are too subjective, leading to potential confusion for investors. “Even the IFIC methodology is voluntary, and even if they follow the methodology, they can always use their judgement to bump up or down a risk category if they see fit to do so. There’s a lot of subjectivity involved,” he says. “They’ve released an update, in my mind it’s still a weak method of assessing fund risk. It can be a lot better and simpler than it is.”
Related Links:
Mutual fund risk standard is of little help to investors
Advisors suffer setback in battle against client bias
