Since 1 January 2018, the packaged retail and insurance-based investment products (Priips) regulation has required manufacturers to provide a stand-alone Kid for each product.
Additionally, firms that advise a retail investor on a Priip, or sell a Priip to a retail investor, must provide the retail investor with a Kid before the transaction is concluded.
What is the purpose of a Kid?
The Kid details risks, performance scenarios, costs and other pre-contractual information in a standardised way. It is required to be accurate, fair, clear and not misleading.
FCA rules require firms to ensure that their communications with clients are fair, clear and not misleading. They are also required to act honestly, fairly and professionally, in accordance with the best interests of their clients.
Too optimistic
However, some firms have expressed concern that, for a minority of Priips, the performance scenario information may appear too optimistic and, therefore, has the potential to mislead consumers.
On Monday, James Anderson, manager of the £6.5bn Scottish Mortgage Investment Trust, run by Baillie Gifford, said he is “extremely disturbed” by Kids, saying they focus too much on past investment performance which could mislead investors.
The regulator said there may a number of reasons for this, such as the strong past performance of certain markets, the way the calculations must be carried out or calculation errors.
As a result, the FCA has said that where a Priip manufacturer is concerned that performance scenarios are too optimistic and may mislead investors, it is “comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider”.
Where firms selling or advising on Priips have concerns that the performance scenarios in a particular Kid may mislead their clients, they should “consider how to address this”, for example by providing additional explanation as part of their communications with clients.
Welcome move
The Association of Investment Companies (AIC) welcomed the FCA’s statement announcement.
Ian Sayers, chief executive of the AIC, said: “We are encouraged by the pragmatic approach to the industry’s concerns. Directors of investment companies have expressed their misgivings about the performance scenarios that Kids require which, in some cases, are too optimistic.
“It is one of the pleasing features of the investment company sector that independent boards of directors are more concerned with providing an accurate picture to investors rather than simply complying with rules.
