Martin Bock, RBC Dexia

KII countdown: the global dimension

Key Investor Information becomes a reality in twenty days – and this is just the start. Martin Bock (pictured), Senior Manager, Funds Segment Strategy at RBC Dexia, comments…

Fund managers beware. Short and concise documents that explain to investors the investment objectives and risk profile of a product – pioneered through Key Investor Information (KII) documents under UCITS IV – are being taken up by regulators worldwide.

With just twenty days to go until KII becomes mandatory under UCITS IV, regulators are reacting to increasing calls for well-structured short-form documents that provide investors with straightforward information so they can evaluate a proposed investment and the associated risks. Simple, highly structured documents ease the comparability of products.
 
Getting UCITS asset managers up to speed with KII has been a bumpy road, and many market participants still do not grasp the considerable opportunities that lie in electronic content management. In practice, the volumes and update frequencies for KII documents make it difficult, costly, inefficient, and in many cases even impossible, to use traditional word processor-based document production.
 
In Europe, more than 70% of all fund investments are held through UCITS products. Given the size of this market, KII is set to become the reference for easily accessible investor information, and the appetite of regulators for the KII documents now stretches well beyond the UCITS framework.
 
It was reported in May the European Commission would introduce a KII requirement in its long awaited legislation on packaged retail investment products (PRIPs). It is also seriously considering introducing KII for pensions under the revised Occupational Pensions Directive, which is currently under discussion in Brussels.
 
Research undertaken by RBC Dexia and an analysis published by KPMG in March showed that regulators in several European Union countries either required, or planned to require, fund managers to distribute KII or similar documents with their non-UCITS products.
 
For example, in Germany a product information document (PIB) must be distributed with non-UCITS funds. Locally distributed funds in Switzerland, which is not a member of the European Union and not subject to the UCITS IV directive, nevertheless require KII. KII is also mandatory for non-UCITS funds in France, Spain and Sweden, while Hungarian regulators require a concise information sheet for all public, open-ended funds and all non-UCITS vehicles.
 
The Commission said in its proposals for PRIPs: “The task now is to address these other products. All European retail investors should receive short, comparable and standardised disclosures, whatever the investment product they are considering.”
 
According to the draft legislation, the document would be similar to the UCITS IV-brand KII and include a risk and reward indicator, as well as information about past and potential performance and investment strategy. It will also need to be written in plain language so it is “understandable by the average investor”, says the Commission.
 
Further afield in Asia, Singapore requires fund managers to prepare a Product Highlight Sheet, while in Hong Kong a Key Facts Statement is mandatory for all issuers of authorised funds. And in North America, Canada has recently introduced a Fund Facts Document for mutual fund investors which must be in plain language and present information clearly and concisely.
 
However, the prospect of a widening net of key investor information requirements could present logistical problems for the fund management industry. Early versions of KIIs sent to regulators under UCITS IV were not meeting plain language requirements and complaints abounded that they had errors. Plain language has been one of the main hurdles for asset managers because they must rethink how they describe and formulate their investment policies.
 
The widening of the KII sphere may also have implications for competitiveness between funds. Distributors who are increasingly under pressure to deliver advice and investment education to investors may favour products with well prepared information sheets.
 
The widening adoption of KII may appear to be a burden, but it is not. Turning KII into an advantage means seizing changing trends in information management regarding investment products.
 
In the years ahead investors and distributors will clearly favour well written and well considered KIIs. With more financial products requiring KII, it could be damaging to ignore this trend. These documents truly have the potential to act as a differentiator in a highly competitive market and asset managers should utilise professional content management solutions for their documentation needs.

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