KIIDs not being completed accurately, study shows
European asset management firms are falling short in their completion of KIIDs, the Key Investor Information Document which must be adopted across the region by 2012.
A survey conducted by service provider KNEIP and communication firm Ebsylon, shows improvements need to be made to the form and presentation of the document. The study was based on a random sample of 100 KIIDs from 29 asset managers in four languages (English, French, German and Italian).
While the content was found to be generally correct, with good attention given to the Risk and Reward Profile section, the vast majority of samples fell short of respecting the prescribed texts and presentation of information.
Mario Mantrisi, head of product management at KNEIP, commented: “We were impressed with the positive strides the industry has made ahead of July 2012. What the research highlights is that asset managers have made excellent progress with the content of the KIID, while the form needs work.”
“While these findings may at first view seem somewhat pedantic, regulations are quite clear in their specifications and leave little room for interpretation of prescribed statements or formatting of various elements. The result is that fund managers distributing KIIDs cannot be assured that the KIIDs would pass the scrutiny of regulators, if checked. This risk is increased by exposure to potential complaints from investors, and the possibility of liability.”
A few examples of issues revealed by the research show:
– There were inconsistencies (eg “The fund invests mainly in shares (…)” written in the Objectives and Investment Policy, whereas in the Risk and Reward Profile narrative is found: “The Fund may invest a substantial part of its assets in sovereign and corporate bonds”).
– If a benchmark is mentioned in the Objectives and Investment Policy, it must be shown on the Past Performance chart. If a benchmark is shown on the Past Performance chart, it must be mentioned in the Objectives and Investment Policy. There were inconsistencies in both directions.
– 56% misrepresented the Past Performance bar chart (e.g. past performance figures were not rounded to one decimal place or performance figures were displayed for incomplete years).
– Some KIIDs omitted the narrative explanation of the synthetic indicator or its main limitations (the category 1 does not mean a risk-free investment).
– 54% misrepresented elements of the charges table, such as showing switch charges or not mentioning the narrative explanation of entry/exit charges.
– 54% misrepresented the KIID disclaimer of authorisation details.
Emmanuel Bégat, managing partner of Ebsylon said most KIIDs use jargon or technical terms, whereas regulations are clear about the need to avoid them. “The devil is in the detail when it comes to developing 100% compliant KIIDs. With all the resources and efforts being put into creating them, we feel it is worth going the extra mile to get them right.”
Bob KNEIP, CEO of KNEIP said the firms are using the research findings to help deliver the best solution possible for asset managers in what will be “an important step-change” for the industry.