The call comes after the industry body found that risk indicators in the KIDs attached to investment trusts were often lower than for their ‘sister funds’, when they should be higher.
AIC research looked at 56 investment trust KIDs and compared their summary risk indicators with the summary risk and reward indicators in the key investor information documents (KIIDs) produced by their sister funds.
Sister funds are open-ended equivalents with the same manager and investment strategy, and with significant overlap in the portfolio.
It is commonly accepted that closed-ended investment trusts should be more volatile and have a higher risk indicator, given the existence of discounts and the possible use of gearing, but the AIC found none of the 56 investment trusts had a higher risk indicator than its sister fund.
The research found just three investment companies had the same risk indicators as the sister fund, 40 had a risk indicator one lower than the sister fund, and 13 had a risk indicator two lower than the sister fund.
Reckless
Ian Sayers, chief executive of the AIC, said: “It reflects the reckless decision to allow competing products to produce seemingly identical information but calculated on a different basis. Any suggestion that consumers will appreciate the subtle difference in methodology between the two risk indicators, when they are called virtually the same thing and presented in exactly the same way, is laughable.”
Sayers said the AIC has been arguing against the proposed summery risk indicator since 2010, but its repeated warnings over the past eight years “fell on deaf ears”.
Last week the European Fund and Asset Management Association (Efama) said KID documents “at best confuse and at worst mislead” clients.
In January, James Anderson, manager of the £6.5bn Scottish Mortgage Investment Trust said he was “extremely disturbed” by KIDs, saying they focus too much on past investment performance which could mislead investors.
Sayers added: “I cannot remember a time when consumers, directors, managers, analysts, trade associations and media commentators were so united in their criticism of a piece of regulation. Only regulators appear to have failed to spot what is obvious to everyone else, that basing future projections of risk and performance on the recent past was doomed to failure, and so it has turned out.”
Each fund is required to have a KID available online for investors under Packaged Retail Insurance-based Investment Products (Priips) regulation which came into force on 1 January.
