Long derided for being excessively complex and unwieldy, PRIIPs KIDs and UCITS KIIDs have historically struggled to engage retail investors.
As part of the UK Financial Conduct Authority’s (FCA) Consumer Composite Investments (CCI) reform package, the PRIIPs KID and UCITS KIID will both be replaced with a more user-friendly ‘Product Summary’ document.
The FCA is expected to publish its final rules - including the details of the Product Summary’s contents - later in 2025.
Broadridge participated in a series of highly productive FCA workshops on the CCI, including one that explored what the Product Summary document might end up looking like.
So, what were the key findings to emerge from the workshops?
Under PRIIPs/UCITS, investors buying European regulated funds must be provided with a KID/KIID, a standardised document which outlines a fund’s key characteristics, e.g. performance, costs, and risks.
Any retail investor who has ever glanced at a KID/KIID, however, will know that they are not easy to navigate. That is of course assuming investors even read the disclosures to begin with. So pervasive is the embedded legal jargon in these retail disclosures that data shows barely 3% i of people actually review them before investing.
This comes as research by Broadridge found that nearly 50% ii of PRIIPs KIDs are written in language suitable for an academic audience – this does not chime well with ordinary consumers, given they are more likely to invest if disclosures are easy to understand and written in accessible language.
With the industry struggling to explain what it does, most people are simply leaving their money in cash ISAs or bank accounts. At a time when inflation is eroding savings, the industry needs to do a much better job of educating people about finance and the intrinsic value-add of investing.
The FCA recognises that KID/KIIDs require a total overhaul. Under the CCI, they will make way for a new Product Summary document, the details of which are yet to be determined by the industry and regulators. However, the FCA has confirmed the document must meet four key criteria.
The Product Summary much be; technology neutral, outcomes focused, adopt standardisation only when necessary, and enable consumers to access the right information at the right time.
Any document being distributed to prospective retail investors needs to be simple, concise, easy to use - both digitally and physically, and formatted in a way that allows people to accurately benchmark and visualise the relationship (s) between returns, costs, and risk.
For example, asset managers might find it useful incorporating the FCA’s Assessment of Value (AOV) into the Product Summary. The AOV, introduced in 2019, is an annual self-assessment which requires managers to ask themselves whether they are delivering value to investors, taking into account a number of measurables, including cost, quality of service and performance.
If the funds industry is to continue on its current growth trajectory, it needs to convince savers – some of whom will either have a limited understanding or a negative perception about finance generally – on the benefits of investing.
A well-articulated Product Summary document could make a material difference here.
A preview of the Broadridge proposal for what this could look like can be seen below. For a complete view of the PDF please click HERE
We hope that this update has been helpful. We aim to simplify the challenges of the investment industry by delivering client-centric services and products that address the ever-changing requirements of financial regulation.
Discover how we address the ever-changing regulatory requirements for the EU and UK frameworks for financial services’ compliance HERE.
i Packaged Retail and Insurance-based Investment Products Key Information Document
ii Undertakings for Collective Investment in Transferable Securities Key Investor Information Document
