Consumer protection, better governance and market conduct, as well as ensuring a competitive market remain the key driving forces behind many of these interventions.
Hence, all of these regulatory interventions focused to some extent on the need for more consistent disclosure…of investment goals, underlying allowable investments, target investment outcomes and time horizons, the intended investors/target market, risks, volatility and liquidity.
And of course, an increased focus on fees and costs, with a view of ensuring better value for money for investors.
Others are now adding meaningfully to improving transparency.
The challenge of multiple regulations
Still, there remains questions about the adequacy of “transparency” of fund managers. Why is this?
The broader investment industry is a diverse and complicated, often opaque space.
There are many different investment choices available, and various ways in which to invest in them.
Given this complexity, there is a multiplicity of disclosures and documents often with prescriptive, standardised formulaic disclosures, that is complex to understand and difficult for clients to navigate through.
And this is despite the longstanding focus on plain language, and the regulatory focus to ensure more concise and consistent disclosures.
For example: Calculated fee disclosures, while intended to be standardised, can still throw up anomalies which makes like-for-like comparisons difficult for the end investor.
Granularity in fee disclosures can also be unhelpful for retail clients who may not be aware of the roles of the different service providers and who are much more interested in overall costs.
When the FCA published its key findings following their review of MiFID II costs and charges disclosures earlier in 2019, the report stated that “many firms raised concerns about the contradictory or conflicting disclosure rules¹” in UCITS, PRIIPs and MiFID II regulations.
“Too much” information in multiple documents could result in this being ignored and may result in some people not investing at all, as it seems too complex to understand or to compare between various products.
This is potentially the worst long-term outcome for consumers.
What is needed though, is some level of harmonisation of disclosure requirements across the various regulations and different regulators to ensure more clarity for retail investors.
Is there a negative side to too much transparency?
Hence there are questions about the helpfulness to consumers of too much.
For example, some argue that full disclosure of underlying investment holdings could expose a (large) fund to hedge funds that could negatively impact a fund’s value and therefore returns to retail investors, or potentially give away a fund manager’s competitive advantage.
It has become easy to replicate funds, which could deliver returns close to “star” funds, without the costs required in terms of experience, capability and research efforts.