June 2018
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AIC warns on data taken ‘in isolation’ from KID documents

5 June 2018

The Association of Investment Companies (AIC) has called upon the FCA to protect consumers, following concern that the methodologies and disclosures required by Key Information Documents could lead to misleading information.

The AIC argues that data providers and platforms should not extract individual figures from KIDs and present them in isolation but give those to consumers in full.

The association also believes the regulator, data providers and platforms need to make it clear to investors that investment company KID disclosures are calculated on a different basis to those given in open-ended funds’ Key Investor Information Documents and should therefore not be compared.

The AIC’s warning follows research into the KIDs published by its members, which found that the documents often overstate likely future performance and understate investment risk. The findings showed that 42 investment company KIDs indicated possible future returns of more than 20% per year in the ‘moderate’ performance scenario, while 45 indicated possible future returns of more than 10% in the ‘unfavourable’ performance scenario.

Meanwhile, 129 investment company KIDs have a summary risk indicator of 3, considered medium-low risk, while nine companies have a summary risk indicator of 2 which is considered low risk.

In addition, the research also warned that KIDs will encourage investors to ‘buy high, sell low’, suggesting to investors that they will get higher investment returns in the future.

Ian Sayers, chief executive of the AIC, explained: “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.”

Sayers said he felt “huge sympathy” for members and their managers who are required to produce this information in the knowledge it could mislead investors. According to Sayers, if some of the information had been placed into a financial promotion in the past, the distributor may have faced regulatory sanctions “and rightly so.”

He added: “We 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.”