Money managers under the microscope
Here’s lookin’ at you KIID
The vexing question of how much to tell retail investors about what exactly they are buying has been exercising industry participants at the Reuters European Funds Summit. Although the sentiment is for more transparency and simplicity, as exemplified by the EU’s new two page marketing document, some managers feel this won’t fully reflect the risks and processes involved in a product.
The Key Investor Information Document (KIID), to be rolled out under UCITS IV, will replace the little loved ”simplified” prospectus as the primary document via which fund promoters communicate with prospective clients – something that makes some managers very uneasy.
Noel Fessey, managing director of Schroder Investment Management in Luxembourg, admitted he had a bee in his bonnet about KIID, which requires managers to be very concise in their descriptions. “Under UCITS IV the fund prospectus becomes the subordinate document but that’s the main document in which you can set out all the risks.”
He agreed that the KIID would allow investors to compare products – something the simplified prospectus had failed to do, but added, “There’s a significant degree of optimism by the regulator about what the KIID can do.”
The problem for regulators and fund managers is trying to strike a balance. ”If you are too technical you will scare people,” said Andrea Favaloro, head of retail at BNP Paribas IP/Fortis Investments. “We need to explain what happens in simple words.”
Maybe fund managers will have to experiment with some very small fonts.