Since the original Ucits directive was first adopted in 1985, it would be churlish to suggest that the legislative uniformity it created has not been a success.
The amount of coverage given to so-called sophisticated Ucits funds in Portfolio Adviser and other financial publications in recent years is testament to this. For one, the adoption of Ucits III and the introduction of full eligibility of derivatives has been a driving force behind the growth of absolute return strategies in the retail marketplace.
But what of the newest incarnation – Ucits IV – which is now in the process of being implemented? Talk with fund groups and, privately at least, many will tell you that it is actually proving to be quite a headache preparing for the latest update. The main stumbling block is Key Investor Information Documents (KIIDs), a replacement for simplified prospectuses which must be in place for each individual sub-fund and separate share classes on all funds.
The KIID must include a brief description of a fund over two sheets of A4, covering risk profile, charges and past performance and written in the language of every country where the product is sold. This is proving to be a mammoth administrative nightmare for groups, which also have to deal with the time-consuming task of preparing themselves for the post-RDR retail landscape.
Risk/reward ranking
Perhaps most significantly, groups must adopt a synthetic risk and reward indicator (SRRI) to effectively rank funds on a risk basis of one to seven. While a one score signifies a low risk/low reward investment, a seven carries high risk by high potential returns.
The system has already come under scrutiny from commentators who believe that the SRRI rankings could prove misleading, while a joint paper from the IMA and ABI last year concluded that an asset class-based SRRI approach would make more sense to investors.
Whatever your view, there’s no doubt that the European Commission is making fund groups work for their rewards. Ed Dymott, head of UK fund partners at Fidelity, puts this in stark terms: “As things stand, we will have to produce documents for 700 share classes in 15 different languages and estimate three revisions per share class, per year. This means something in the region of 45,000 a year.”
You can read more on KIIDs in the June issue of Portfolio Adviser, out next week.
