Key information documents (Kids) are misleading investors, meaning the Financial Conduct Authority (FCA) must act to correct the problem, according to the Association of Investment Companies (AIC).
As FTAdviser has previously reported, since January this year under the Packaged Retail Insurance and Investment Products (PRIIP) rules, investment trusts are required to produce an information document, known as a Kid, to help investors understand the investment.
It must contain projections of future performance and a risk measure as prescribed by the regulations.
But the Kids have faced severe criticism from the industry, which claims the information does more to confuse than clarify.
The AIC has taken the decision not to display the Kid documents of any trust on its own website, due to its concerns.
Simon Fraser, chairman of the F&C Investment Trust and the Merchants trust, said the rules around how the performance projections are communicated risks a “future mis-selling scandal.”
Now the AIC, which is the trade body for investment trusts has released research based on its examination of its own members Kid documents.
The trade body said: “The methodologies and disclosures required by Kids lead to misleading information and the FCA should take steps to prevent this information being more widely distributed than it needs to be.”
The organisation said data providers should not present the performance projection data in isolation.
Ian Sayers, chief executive of the AIC said: “Having seen the reality of Kids, we are in no doubt that many are misleading to investors and it would not be responsible for us to distribute them more widely. So we won’t be hosting them on our website.
“I have a huge amount of sympathy for members and their managers who are required to produce this information knowing that it may mislead investors.
"If some of this information had been put into a financial promotion in the past, the distributor might well have faced regulatory sanctions, and rightly so.
"e welcome the recent announcement by the FCA that allows members and managers to provide some additional context if they feel the disclosures are misleading.
"However, this demonstrates the flaws in the methodology and why extracting individual figures from the Kids and presenting them without this context would simply make a bad situation worse.
"I have heard people say that Kids are not worth the paper they are printed on. Unfortunately, in some cases, it is even worse than this.”
A representative of the Financial Conduct Authority pointed to a recent speech made by Andrew Bailey, its chief executive, where he committed the regulator to working with investment firms and trade associations to address any concerns about information documents.
But Francis Klonowski, who runs Klonowski and Co, an advice firm in Leeds, said he is less concerned about the potential for mis-selling than many others in the industry.