Morningstar has called for European rulemakers to make improvements to the key investor information document (Kiid), claiming it has hampered disclosure rather than improved it since its introduction two years ago.
In its third Global Fund Investor Experience Report, the data provider said its rating of the UK’s fund disclosure regime had declined in the two years since its previous report, largely as a result of the transition to the Kiid from the previous simplified prospectus.
The company highlighted the simplified prospectus’s breakdown of fees in monetary terms and its “investor-friendly, question-and-answer format” as important elements that had been lost.
Chris Traulsen, director of research at Morningstar, said: “The Kiid is a nice, short document for investors, but the risk buckets it uses are too simplistic. Also, the ongoing charge is good in theory, but the disclosure of performance fees is more varied. I don’t think we would want to throw out the Kiid but there is a chance to improve it.”
The European Commission is currently drafting rules known as the Packaged Retail Investment Products (Prips) directive. Within this is a proposal for a new version of the Kiid to be rolled out across all retail investment products available in Europe.
But Vincent Ingham, senior regulatory policy adviser at the European Fund and Asset Management Association, argues that the Kiid is a “significant improvement” on the simplified prospectus.
“The document might not be perfect and there may be room for marginal improvement, but I think we should give the Kiid enough time to assess it,” Mr Ingham said.
Ed Moisson, head of UK and cross-border research at Lipper, added: “I would think it is too early to say whether the Kiid needs revising until it has had time to be used more widely by retail investors.
“Some may object to certain elements within the document, but that is not new and the regulators were aware of disagreements when they published the final version.
“While advisers in the UK might find the Kiid of limited use, IFAs are far fewer in number in other European markets. Regulators will be looking for European-wide retail investor views before making any changes.” Kiids were brought in to replace the simplified prospectus under Ucits IV fund rules. However, many advisers don’t like them, claiming the documents can confuse clients.
Advisers are also concerned that the risk-rating system, which applies a rating of 1-7 to funds based on volatility, does not give a full picture of risk.
