First impressions of KIDS – a very mixed bag

Estimated reading time: 3 minutes

The PRIIPs regulations came into force on 1 January 2018, requiring all providers of Packaged Retail and Insurance-based Investment Providers to have a Key Information Document (KID) available online from 3 January 2018.  

Reuters reported on 4 January 2018 that Hargreaves Lansdown have withdrawn or suspended in excess of 1000 ETFs and Investment Trusts for not complying with the PRIIPs regulations.  A large number of these were US based companies who have no intention to do so but almost 100 were UK-based investment trusts that are for now unavailable for investors on the market’s leading platform.

Late in December 2017, the European Fund and Asset Management Association issued a very damning statement on KIDs, saying that the calculations are ‘fundamentally flawed’ and ‘will at best confuse investors and at worst mislead them’.

This made us wonder whether insurers are complying and whether there is consistency between firms’ approaches to enable comparability.  

Our findings were quite startling

On 5 January, we trawled the websites of 13 friendly societies (four Holloway providers and nine who provide, among other products, a Tax Exempt Savings Plan (TESP)).  Our findings were as follows:

• Three had no KIDs on their website (although one website was currently under development)
• For the TESPs published:
  • The Summary Risk Indicator ranged from two to four
  • The moderate scenario average return at the Recommended Holding Period (RHP) ranged from 1.65% to 6.07% after costs.
  • The Reduction in Yield due to costs ranged from a very low 0.14% to a very high 5.2%. We are not convinced costs have been calculated consistently
  • One firm included a comprehension alert informing the reader that the product is not simple and may be difficult to understand. Other firms offering the same product did not include this alert.
• Three KIDs were dated well before 1 January 2018, with one as early as September 2017
• Two of the Holloway providers showed significantly negative average returns over the RHP under the moderate scenario due to very high levels of costs shown
• There were a variety of approaches taken to interpreting the requirement to split the regular premium of £1000 p.a. between an investment and an insurance premium.  Many showed no split, some split the £1000, some showed an investment premium of £1000 plus an additional insurance premium and one showed an insurance premium of £1000 plus an additional investment premium
• A number of firms did not include the accumulated investment and insurance premium lines in the performance scenario table and, among those that did, some accumulated with interest and some didn’t
• Four of the firms showed no portfolio transaction costs. One firm showed no recurring costs, other than portfolio transaction costs
• Two firms did not show the costs breakdown to two decimal places as required. For several firms, the number of decimal places used varied across, or even within, tables
• One firm showed an insurance cost despite stating that the product does not charge any insurance costs
• One firm showed an entry cost of 100%
• Firms offering products which include insurance cover did not include biometric information explaining how the insurance scenario was calculated

In summary, beware of inconsistency

Clearly, those that currently have no KID on their website are running a compliance risk and risk IFAs not being able or willing to sell their products if this is not rectified.

For those that have met the requirements to publish, it is clear that there are a lot of inconsistencies of interpretations of the regulations.  We encourage firms to investigate such items. An inconsistent approach may lead to firms suffering from lower sales if they are showing worse numbers than others, or a compliance risk if numbers are not compliant and create a false expectation.