A lack of compliance with the Key Investor Information Document (KIID) requirement could impact an asset managers brand, argues Martin Bock, product management at RBC Dexia.
The KIID will replace the UCITS simplified prospectus on July 1 2012. With 10 weeks to go before the documentation becomes a legal requirement RBC Dexia says the probable brand identity impact of non-compliance is despite the EU directive not specifying any penalties for missing the deadline. The probable market penalty of the impact on an asset managers identity is not to be underestimated, says Bock. Will distribution partners still be willing to handle Simplified Prospectuses instead of KIIDs in July, and sell those funds in the market? Time will tell.
Aside form brand identity, Bock argues that some asset managers are also estimating the step change involved with KIID compliance and are neglecting the competitive opportunity KIIDs offer.
So far, many asset managers have underestimated the level of change required, and there are no specific provisions laid out in the Directive for those who are not compliant by July, he says. It typically takes at least two months between the decision to start KIID production and the point at which the final documents are translated, submitted to the regulators and filed with the distributors.
Bock says many fund houses are in the middle of projects, but with ten weeks to go, they are leaving elements of it very late and overall there will be thousands of documents still to be produced. Some smaller houses have shown no hurry to embark on projects so far, he adds.
Bock also points out that plain language requirements have been overlooked, and should be considered a marketing tool for asset managers The KIID itself can be printed relatively quickly. However you cant simply convert an existing prospectus into a two page KIID because it has to fulfil plain language requirements. Rather than just changing some words to make it sound less technical, we believe this applies to the entire approach of writing and describing an investment policy. It means taking a fresh look at how investment strategies are explained.
More than this, documents that are easy to understand and user-friendly should be considered a powerful marketing weapon, rather than just a legal obligation. Its a competitive environment for asset managers today and investors have a wider choice of funds than ever. Distributors will rely on the document to encourage investors to subscribe to the fund.
Because plain language is, in our view, the mark of a quality investment product, poor or no plain language could be detrimental for an asset manager.
With the deadline looming Bock points to KIID compliance as a matter of urgency. KIIDs are one of the most significant issues facing asset managers this year. Regulation such as Volcker and FATCA has made headlines, but the deadline for KIID compliance comes more quickly than any other, and there are no loopholes. Once produced, the KIID must also find its way into the end investors hands prior to signature, otherwise all the hard work is for nothing. It is important, then, that production and distribution do not distract asset managers from their core business, and it is also highly advantageous for them to get them right and on time.
(JDC)