The asset management industry has breathed a collective sigh of relief over the abolition of the PRIIPS regime – and for marketers that includes the Key Information Document (KID).
But let’s not sit back and relax. The government’s intention is to create a basis for communicating the key features of investment funds that actually works for investors – telling them what they need to know to take a decision, in language they understand.
However, this goal remains distant. Under the current regulatory regimes, the lawyers have taken over and the whole system has been shaped by self-preservation. Investor documents are a conduit for disclosures and disclaimers to protect against miss-selling if things ever got to court. What we have ended up with are two of layers fund communications:
- Standard documents such as the KIID and now defunct KID
These are so standardised as to be almost entirely devoid of any information that might actually be useful in taking a decision. (The government has criticized the KIID document too – and rightly so.)
- Non-standard fund fact sheets with portfolio and performance data
This is where the legal-minded approach to compliance has run amok, creating endless layers of disclosures, disclaimers and obscure descriptions of risk.
“Such a range of standardised and non-standardised documents can be confusing for investors and an unnecessary burden for firms,” said the FCA. Prevailing regulations created “unnecessarily prescriptive measures that led to information being presented to investors in unhelpful or, worse, misleading ways.”[1]
For investors and advisers (and indeed many other client segments), the fact sheet is both the first point of reference in their decision-making journey, and the last (it’s kept on file as evidence of due diligence and suitability).
We must therefore assess our fact sheets as a means of conveying the type of information investors actually need to take a decision. That seems obvious. What’s surprising and depressing is just how few fact sheets pass the test. Most fall into two camps:
- The purists, which swamp the reader with undifferentiated data while offering little subjective or descriptive information.
- The obscurantists, characterised by paragraphs of description and risk “explainers” that are so verbose as to be almost entirely unintelligible.
I wish I could share some examples here, but asset managers are our clients as well as part of a prevailing culture, so I won’t.
Obscurantism is the practice of deliberately preventing the full facts from becoming known – while “deliberately” may appear harsh, that’s the effect of the legal and compliance-led regime in most asset managers. What’s interesting is how – in the UK, at least – the regulator is acknowledging the problem, including it’s own part in how we got here.
The challenge and opportunity for marketers is to reclaim ownership of the concept of “clear, fair and not misleading”. This will be a long but important road.
We haven’t even talked about Consumer Duty – the gist and direction of travel are the same. “Consumer understanding” is now an explicit priority; the FCA is clearly advocating communications that are consistent with the prospectus while remaining accessible and understandable. In other words, if the prospectus is the domain of the lawyers (and rightly so), all the short-form communications must now be the domain of the marketers exercising client-led judgement of what matters and how to present it.
In short, we have a huge opportunity to sweep away the jargon-filled web of obscurity that mires the standard descriptions of our funds and focus on information that counts. What does this fund invest in? What does its portfolio look like? What is it trying to achieve? What are the risks? And how much will it cost? All answered in language that my parents would understand. Simple, but not easy.
Is it too much to hope that the winner in all of this is plain English? Let’s reclaim ownership of our communications and relearn the ability to communicate with investors – presenting the information they actually need in simple, intelligible terms.
We can be proud of creating communications that help our clients, rather than just the reassurance that we won’t go to jail. Rise up, marketers – this our moment, and the regulator has got our backs.
[1]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1122846/Consultation_PRIIPs.pdf