Funds Hub
Money managers under the microscope
KIIDs can help bridge the trust gap: Lipper
By Merieme Boutayeb. Research Analyst at Lipper. The views expressed are her own.
The European fund industry is getting a second chance this week to improve the way it communicates with investors when selling its products. While the first effort became mired in legalese and complexity, the Key Investor Information Document, or KIID, should offer a golden opportunity to recoup some more of the trust lost during and after the financial crisis. Firms would do well to look past their misgivings and not waste it.
The new requirements are part of the broader changes that come as part of UCITS IV regulations designed to further develop a single market in investment products. The KIID will replace the much-criticised Simplified Prospectus as the means to facilitate the understanding of neophyte investors.
Published by ESMA (the European Securities and Markets Authority, the final KIID layout will be divided into five principal sections: objectives and investment policy; risk and reward profile; charges; past performance; practical information.
A KIID will have to be prepared for each share class in a standardized two-page format. It is probable that the task will be arduous for those funds using deeply complex investment strategies which they are required to distil into simple terminology. But they will have to respect the rule (and might be afforded a bit of extra room) as regulators seek to ensure transparency and comparability between different funds.
The KIID will also have to be available in all the languages of the countries where the share class is registered for sale, a requirement which goes beyond the demands of the Simplified Prospectus and which will result in additional costs. According to Lipper data, there are about 50,000 UCITS share classes registered for sale in Europe. Taking into account the fact that every share class must have a KIID in each language of country of registration for sale, the number of documents to be produced would be more than 160,000 KIIDs by July 1, 2012. Share classes already in existence before July 1, 2011 have a deadline of one year to develop their KIID.
Professionals from the sector estimate that the cost of a KIID would vary between 50 and 125 euros, assuming the release of a single version in the year. That means the overall production of KIIDs would cost between 8 million and 20 million euros, without taking into consideration changes that may involve the production of an updated KIID.
