FCA allows clarifications to counter ‘overly optimistic’ investment projections

Advisers concerned performance scenarios in a Priips key information document might mislead their clients can give more information to the investor, the FCA says.

The regulator today published a statement on the KIDs, brought in on 1 Janaury through new Priips regulation.

Analysts and investment firms have warned over the misleading KIDs, with Baillie Gifford this week saying several boards of its investment trusts have written to the FCA about their concerns.

In the statement, the FCA acknowledges the concerns expressed by those in the industry that the performance scenario information in the KID might appear too optimistic.

Warning over misleading Priips document for investment trusts

It says: “Where firms selling or advising on Priips have concerns that the performance scenarios in a particular KID may mislead their clients, they should consider how to address this, for example by providing additional explanation as part of their communications with clients.”

It adds: “Where a Priip manufacturer is concerned that performance scenarios in their KID are too optimistic, such that they may mislead investors, we are comfortable with them providing explanatory materials to put the calculation in context and to set out their concerns for investors to consider.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. What a complete farce!

  2. Not good enough. We shouldn’t have to explain the obviously mis-leading figures – retail investors should be able to trust the documents sanctioned and demanded by the FCA. Put a trust KID alongside an illustration and the result is absolute confusion – a perfect example of a regulator doing everything they can to be unhelpful to the very people they are supposed to be protecting.

    Clients should only be given enough information to make a properly informed decision as too much information is very bit as unhelpful as too little. Wake up FCA, you’re supposed to be serving investors.

  3. These KIDs (and all projections) are a complete nonsense. Far information is contained in the Key Facts documents, which at least list the top 10 holdings and show sector allocations. These KIDs are absolute rubbish and are completely meaningless. “If they make 5% it will be worth £105” If my Grandmother would have had a beard she would have been my Grandfather!

  4. Who but the FSA caused the mis selling of Pensions in the early eighties due to there ridiculous growth assumptions. Beware another mis sale scandal down to regulator, but who will get the blame!

  5. What would assist further here are some examples. Scottish Mortgage is being forced to disclose the following potential returns over 5 years, which apparently is based on past performance:

    -Stress scenario: -18.70% per annum (turn 10k into £3.5k)
    -Unfavourable scenario: 10.67% per annum (turn £10k into 16k)
    -Moderate scenario: 23.05% per annum (turn 10k into £28k)
    -Favourable scenario: 36.76% per annum (turn 10k into £47k)

    Mr I Trust is thinking great, even if returns aren’t great I’m going to get 10% per annum. His Sister Mrs U Trust and their weird nephew Master Jedi ETF are none the wiser and will have to wait two years to find out.

    This is an absolute shambles from our regulator. These new KIDS shouldn’t even have gone to print, let alone be subjected to the Investment Trust industry as a trial.

    And even now, after being prompted by the Industry, the regulator is putting the ball back in industry’s court rather than taking some flippin’ responsibility!

  6. One day someone will actually look at the advice process from the client’s viewpoint and will recognise how stupid everything is. MiFID II is a farce and does not help clients one iota. There are simple and better ways of giving clients important information. At least with robo advice computers do not have to explain the trash given to clients. We do at the client’s expense. A large company for many years tried to improve efficiency and reduced personnel, introduced automation, just in time approaches etc. but only when they asked the question “does this job actually have to be done” did they make real inroads and benefit customers.

  7. I would also like to add that it is disgraceful that the Investment Trust industry is being treated as the poor Laboratory Rat in all this. They will take all the initial flak and potential complaints for misleading information whilst the Open Ended industry gets to wait for the dust to settle.

    This regulation should have been tested before implementation and subsequently implemented on the whole industry when it was ready. It’s not ready, and now the regulator is copping out by throwing it back at the industry.

    The industry is left in the unenviable position of having to explain why they are being forced to use past performance for the basis of future projections, when this is everything the regulator has always been against (and rightly so). Somebody has made a major balls-up!

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