The government's scrapping of the packaged retail and insurance-based investment products regulation will open up an opportunity to improve investor communication and get better value products into the market, says the AIC's Nick Britton.
The head of intermediary communications says the regulator has some great ideas on making disclosure more accessible for investors, but he also warns against creating one disclosure framework for all products.
Chancellor Jeremy Hunt wants to scrap the EU's Priips regulation as part of his Edinburgh reforms package. The Financial Conduct Authority had already looked into options for reforming investor information documents but it will now have the chance to come up with a new disclosure regime altogether.
The reform has to do three things, says Britton: "It's got to actually help investors, which sounds obvious but the disclosures at the moment are not really helping investors; they've got to enable investors to compare similar products or products that do the same thing – and that's good for supporting competition and getting better value products out there into the market; and finally they've got to actually be accessible because at the moment I think the FCA's own figures show that only 3 per cent of people are reading the pre-sales disclosure.
"The FCA has got some great ideas around making disclosure more accessible, engaging, perhaps even interactive, using graphics, and that's something that it will be interesting to see developed."
The AIC wants to see the scrapping of both Kids and Ucits to create a regime that could bring open-ended funds and investment companies onto a level playing field with a single disclosure regime. This would allow investors to compare products they could substitute for one another.
But it does not believe in bringing all products under one regime.
"The key thing is that we don't try to have one disclosure, which is going to compare every product out there," says Britton.
"So, for example, trying to compare a structured product with a micro-cap investment trust, it just doesn't work, they're not substitutes for each other, so forcing everyone to disclose exactly the same data points in the same way is actually not going to help comparisons, it's going to hinder them.
"So it's got to have that amount of flexibility to enable different products to provide meaningful information."
He adds: "The real issue at the moment I think is that you've got key information documents, Kids, you've got Kiids, and outside this room to the normal person these things sound pretty much indistinguishable and they appear to carry much of the same information about performance, risk, cost... but the methodologies to calculate those data points are completely different, so they are not comparable at all.
"That is the situation the FCA now has the power to address, which is very good news."
To hear more about investment disclosure reform and why there could be issues in having different regimes in the UK and EU, click on the image above.
