All you need to know about producing compliant PRIIPs documents


PRIIPs – the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products – came into force on 1 January.

However, a Money Marketing article has claimed that the Key Information Document – a PRIIPs requirement – has potential shortcomings when applied to investment trusts.

Here we look at the issues for investment trusts, and how you can make your factsheets and Key Information Documents compliant.

What is PRIIPs?

The new regulation applies to a wide range of firms, including banks, insurers, and investment managers.  

It aims to extend the consumer protection standards introduced by MiFID II to insurance-based investment products.

To meet its demands, you need to have a good understanding of what PRIIPs regulation is and how to comply.

What are Key Information Documents?

PRIIPs requires all investment companies to produce a Key Information Document (KID) if they want to sell to retail investors.

There are some standard components of a KID under PRIIPs. It must address:

1.  What is this product?

2.  What are the risks and what could I get in return?

3.  What happens if [the PRIIP manufacturer] is unable to pay out?

4.  What are the costs?

5.  How long should I hold it and can I take my money out early?

6.  How can i complain?

7.  Other relevant information

It’s essential that you make your KIDS user-friendly so that consumers understand your products, their risks and implications.

If you market investment trusts, you not only have to make your documents user-friendly. You also need to ensure you don’t fall into the traps around potentially misleading information.

Why could KIDs be misleading for investment trusts?

Analyst Numis Securities has published research claiming that some content in investment trust KIDs has the potential to be misleading.

The issues flagged as being potential problems are:

Performance scenarios. If you cite performance covering potential share price returns over five years, the strong performance of the market over the last five years can make scenarios highly optimistic.

Cost data. Costs included in the documents have been shown to be calculated inconsistently. Some trusts include stamp duty in the costs. Others exclude finance costs or performance fees. There are also differences between some estimates of transaction costs.

How are KIDs used - and how could problems impact your business?

Multi-managers have to use the KID when they calculate their own costs. When private wealth managers demonstrate their costs to clients under MiFID II, they’re expected to use the cost data shown in the document.

If there are discrepancies in the way these costs are calculated, it’s hard for investors to make the right choice about the most appropriate fund or investment trust.

For your firm, this could mean you struggle to sell some of your funds and trusts. According to the Money Marketing article, ‘some wealth managers have already expressed a potential reluctance to buy investment companies that show high costs in the KID’.

How to produce compliant and user-friendly KIDs

Aside from the sales issues, the difficulty in comparing costs has compliance implications too. If they make it hard for advisors to select the most suitable investments for their clients, this will negatively impact your ability to meet the FCA’s requirements around suitability

Aside from the specific challenges for investment trusts, there are some simple steps you can take to make your Key Information Documents clear and user-friendly:

Investigate the benefits of automation

Automating your production and approvals process for marketing documents and financial promotions can make a huge difference when it comes to saving time, increasing efficiency, reducing costs and minimising potential compliance breaches.

To find out more about how automation can help you to deliver compliant KIDs and other marketing and comms materials, you can read our free whitepaper, The benefits of automated workflow systems. You can download your copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

New Call-to-action