AIC ‘sister funds’ analysis demonstrates why the FCA needs to act now over Key Information Documents

The Association of Investment Companies (AIC) today published further research demonstrating why consumers are being misled by Key Information Documents (KIDs) and why the FCA needs to act now to protect consumers.

The research looked at 56 investment company KIDs and then compared their Summary Risk Indicators to the Summary Risk and Reward Indicators in the Key Investor Information Documents (KIIDs) produced by their ‘sister’ open-ended funds.  A ‘sister’ fund is a fund which shares the same manager, has the same overall investment strategy and a significant overlap in terms of portfolio.  Both KID and KIID indicators grade risk on a scale from 1 (low) to 7 (high), but they are calculated in different ways.

Given the existence of discounts and the possible use of gearing, the accepted view is that the investment company would be more volatile than its sister fund and therefore should, if anything, have a higher risk indicator. In fact:

  • None of the 56 investment companies has a higher risk indicator than its sister fund
  • Just 3 investment companies have the same risk indicator as the sister fund
  • 40 investment companies have a risk indicator one lower than the sister fund
  • 13 investment companies have a risk indicator two lower than the sister fund

Commenting on these findings, Ian Sayers, Chief Executive of the Association of Investment Companies (AIC) said: “Imagine consumers choosing between an investment company and its sister open-ended fund. They have done their research, chosen an investment strategy and manager they like, so all they have to do is decide whether to buy the investment company or open-ended version.  The investment company KID is showing stellar returns in ‘moderate’ markets, and healthy returns even in ‘unfavourable’ markets.  Prudent investors might then check to see whether these returns are being obtained at the price of much higher risk by comparing the risk indicators of the two funds.  Imagine their delight to discover that they can have these fantastic returns with lower risk.

“Of course, this is all nonsense.  It reflects the reckless decision to allow competing products to produce seemingly identical information but calculated on a different basis.  Any suggestion that consumers will appreciate the subtle difference in methodology between the two risk indicators, when they are called virtually the same thing and presented in exactly the same way, is laughable.

“I cannot remember a time when consumers, directors, managers, analysts, trade associations and media commentators were so united in their criticism of a piece of regulation. Only regulators appear to have failed to spot what is obvious to everyone else, that basing future projections of risk and performance on the recent past was doomed to failure, and so it has turned out.  They cannot say they were not warned.  The AIC argued against the proposed Summary Risk Indicator back in 2010 for precisely these reasons, and we were not alone.  However, repeated warnings over the next eight years fell on deaf ears.

“Though we welcome the FCA’s decision to gather evidence, this should not be an excuse for further delays.  The evidence is all out there and has been for six months.  Though a longer-term solution will need to be carried out at the European level, the FCA should take steps today to protect consumers.  A good start would be to acknowledge how bad this regulation is and then warn investors not to rely on these disclosures when making investment decisions.”


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  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £182 billion.
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