This week we will see the European Parliament’s rapporteur’s report on the key investor document (KID) for all packaged retail investor products (PRIPS) which aims to provide consistent and simple information on all non-ucits products, regardless of where in Europe they originate. This is an ambitious but worthy goal. Wouldn’t it be great if every single product had a short document with all the essential product information, which every investor could lay their hands on?
The Ucits key investor information document (KIID) is the result of extensive consultation and consumer research and so far has been well received. It is in the interest of advisers, investors and manufacturers alike for the PRIP KID to be as similar to the Ucits document as possible. And yet, a quick glance at the proposed headings for each shows substantial differences. One KID heading in particular sets alarm bells ringing – it is one entitled ‘could I lose money?’ This may seem a rational question, and if the answer was ‘Yes, because all investment products involve an element of risk’ it would be a sensible proposal. However, what is proposed to appear under this heading is an explanation of compensation arrangements. This is likely to give investors a false sense of security. It would be ludicrous to lead investors to believe that whenever they suffer a loss they can claim compensation, particularly if that loss is simply a result of investment risk or market falls.
Another detail that needs consideration is the inconsistency in the way investment charges are displayed between the two. Current PRIP KID proposals require charges to be shown in a summary format, including indicators for the total investment cost. In contrast, the Ucits KIID has precise requirements which involve separating out costs so that investors can see what they’re paying for. Whilst we don’t think that the Ucits KIID has charges disclosure spot on, deviating from this format in the KID will only add confusion to an already complex area. The IMA has been working with members to bring about consistent and meaningful disclosure which meets investor demands and goes beyond that required by the Ucits KIID. To provide a vague and over simplified ‘summary’ of charges in the PRIP KID would be taking two steps backwards on the route towards simplicity and transparency.
The biggest debate around this proposed regulation is the age old question of what’s in and what’s out? We expect the rapporteur to go for everything in, which is ambitious but in reality probably quite unrealistic. My biggest gripe is the suggestion that group personal pensions be left out. The apparent rationale behind this is that the need for a disclosure document could hinder auto-enrolment. But, given the fundamental role pensions play in the investment landscape and the length of time investors are locked in means we must find a work-around. It is vital all pension products are made as clear as possible. This is a very worthwhile regulation which we must get right for all investors.
Andy Maysey is senior adviser for retail distribution at the Investment Management Association.