What is a KIID?
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| Just kidding... |
These regulatory and legislative changes have been driven by requirements introduced by the European parliament and the aim is to ensure investors are able to make fully informed investment choices. This means investment firms will be changing the format of the way they provide information.
On the plus side, the KIID must only be two pages long. Hooray!
[Ed: I can’t see anywhere in the regulations where it says how big a page is. Sorry to be cynical but I’d be buying shares in poster printers if I were you… ;-) ]
If you invest via a platform or a wrap you should know the KIID is produced by the fund manager, not the wrap or platform and shows you details of the fund you are thinking of investing in.
Implementation
KIIDs have been phased in from 1 July 2011 so you might not always receive one, but some fund managers started producing them straight away. Most will be launching during the first part of 2012.
If a new UCITS-regulated fund is launched before July 2012 a KIID must be provided from the outset. By July 2012 all fund managers must produce a KIID for all their UCITS-regulated funds.
It is likely Green Financial will have to change our processes, in the future asking clients to confirm they have read any KIID for a given fund before effecting a switch into that fund, for example when rebalancing portfolios.
The KIID format is prescribed by the European investment regulator. Therefore, when you read a KIID alongside documentation that has been produced by someone else such as a research house or wrap provider (this information could be, for example, a Funds List or Fund Factsheet), you may notice that some information is presented differently. Some areas of difference could be:
Fund objectives & Special risk factors
The wording of the fund objective or special risk factors may differ slightly between documents, but the actual objective or risk factors remain the same. This is simply because different disclosure documents are produced by different entities.
Risk and reward profile
The documentation produced by other entities has historically often used a numerical scale to show the risk rating of a fund.
The KIID uses a scale of 7 risk bands. The scale will be known as the Synthetic Risk and reward Indicator (mercifully shortened to SRRI Acronym fans!). Funds rated at the lower end are typically lower risk with potentially lower rewards and lower volatility. Those at the upper end are typically higher risk with potentially higher rewards and higher volatility:
KIID risk bands
The calculation method is set down in the rules so as to ensure consistency between fund groups, and looks at 5 year volatility but with the ability to use benchmark data where there is not sufficient fund data. Fund managers must review the SRRIs on their funds regularly. The KIID must be updated annually shortly after the beginning of each year, but if the SRRI of the fund changes, more frequent updates may occur.
At Green Financial we will integrate the new KIID risk bands into our existing document that already compares five different grading scales. This is so that our clients can be aware how any given risk rating compares to others and how their own attitude to risk and volatility, along with their portfolio as a whole or individual funds, aligns with other scales. In this sense we feel we have been ahead of the curve and European legislation in helping our clients understand risk and reward profiles.
Fund charges
The charges shown in the KIID are in a format prescribed by the European investment regulator, which is appropriate for an investment directly through the relevant fund manager.
If you are investing through a wrap or platform, the charges you will actually pay for the fund are likely to be different, in most cases lower. This is because wraps and platforms in conjunction use scale and buying power to negotiate better deals with fund managers.
For accurate details of the actual charges you will pay please refer back to your original documentation, log on to your wrap or platform or contact Green Financial directly
To finish, a few FAQs kindly put together by Fidelity (www.fidelity.co.uk)
1: What is UCITS IV and why are the rules changing?
The UCITS Directive 85/611/EEC (entered into
force in 1988 as amended by UCITS III in 2002) has
been the key driver contributing to the significant
development and success of the European
investment fund industry over the last two
decades. However, with the rapid evolution of the
investment fund market, it was necessary to further
enhance the UCITS market and brand.
2: When does UCITS IV come into effect?
The UCITS IV Directive came into effect on 1 July
2011 however a “grandfathering period” will allow
existing funds and associated share classes to
continue to produce a Simplified Prospectus up
until 1 July 2012, when all UCITS funds must have
a KIID. New funds launched during this period must
have a KIID.
Fund groups can transition to KIIDs any time
between 1 July 2011 and 1 July 2012.
3: What is a KIID?
The KIID will replace the existing Simplified
Prospectus for all UCITS funds and will be a
synopsis of key information relating to a fund.
The KIID must be provided pre-sale at fund and
share class level, and is classified as a legal
document. The KIID will be the primary document
provided to investors and potential investors.
4: What information will be included in a KIID?
The KIID has prescribed content which includes:
- a short description of the objectives and
investment policy of the fund
- a risk and reward profile
- past performance data in graphical form and
- details on costs and associated charges.
5. How will funds be measured in terms of risk?
The risk and reward profile, or “Synthetic Risk and
Reward Indicator” (SRRI) is a new representation
of risk factors in the KIID. It is expressed on a
scale of 1 to 7, with 1 being the lowest risk and
potential lowest reward and 7 being the highest
risk and potential highest reward. It is based
upon a prescriptive calculation method to ensure
consistency between fund groups and looks at
five year volatility with the ability to use
benchmark data where there is not sufficient fund
data. It is supplemented with explanatory text,
including risk descriptions relevant to the share
class the KIID represents.
6: Does the FSA require any other
information to be provided with
the KIID?
The KIID will only replace the Simplified
Prospectus. All other documentation will still be
available to investors.
7: What will Green Financial as my
adviser need to do differently now
that UCITS IV is effective?
An adviser will have a legal and regulatory
obligation to ensure that their client has received
the latest KIID (if available) before an investment
is made.
8: Will I still receive printed documents?
A paper copy of the KIID must be provided to
clients upon request. This will be provided
manually, following the same process employed
when a paper copy of the Simplified Prospectus
is requested currently. Braille and audio copies of
the KIID are also available on request.
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