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ALFI responded to the discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs), which was published in November 2014 by the European Supervisory Authorities (ESAs).
The ESAs are mandated by the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products to develop draft Regulatory Technical Standards (RTS) on the content and presentation of the KIDs for PRIIPs. In order to ensure that all views and options are taken into consideration when developing the RTS, the ESAs were seeking stakeholders’ views on how standardised KIDs should be developed. This discussion paper was a first step in the ESAs’ joint work on the broad issues to be considered in developing the RTS.
ALFI thinks it is essential to ensure that implementation of the PRIIPs regulation is aligned with the implementation of other European Union legislation having the same purpose, i.e. MiFID II, IMD, the UCITS Directive and the AIFMD. Consequently, a product manufacturer should not be required to produce more than one disclosure document, such as the UCITS KIID, which is deemed to fulfil the requirements set by the PRIIPs regulation. Disclosure of information in separate documents would be misleading for the retail investor.
ALFI is concerned that the information is provided in an understandable format and not so detailed that it makes it difficult for a consumer to arrive at an informed investment decision. Too many cost categories are confusing for the investor. While the product may include certain costs (e.g. front-end or redemption charges on funds) these may not be payable depending on the distribution channel through which the product is purchased. It will be difficult for the product manufacturer who prepares the KID to provide details of the actual costs that a consumer may incur.
ALFI would maintain the previously made (under UCITS KIID discussions) argument that the individual disclosure of certain fees, for example portfolio transaction costs, may not be meaningful to the retail consumer. Specifically regarding the categories mentioned, ALFI thinks that specific guidelines are needed regarding look-through costs in case of fund of funds. ALFI also ask for further clarification that dividends from the underlying assets can be considered a cost to the investor only if they are withheld from the investor (and therefore indirectly form part of the manufacturer’s fees). In such instances, dividends should clearly be regarded as costs. In the case of funds, where these costs are credited to the client, they should be considered as a source of income rather than costs.
With regards to bid-ask spread & market impact costs ALFI does not agree with the ESAs’ analysis that transaction costs arising on non-equity markets have to be made transparent as part of the overall product costs separately from the market impact cost of spreads as this is inconsistent with ESMA’s technical advice to the Commission on MiFID II and MiFIR.