June 28, 2018 / 1:30 PM / in 5 months

Europe funds body says EU retail fund rules mislead investors

LONDON (Reuters) - Europe’s top asset management trade body on Thursday added its voice to growing concerns about the impact of new European Union fund disclosure rules, saying they were causing “serious detriment” to retail investors.

The EU’s Packaged Retail Investment and Insurance Products directive went live in January and aims to give investors a better idea of a fund’s likely performance and costs through a so-called ‘Key Information Document’, or KID.

The European Fund and Asset Management Association (EFAMA) said it had collected evidence from its members to see how the rules were affecting the industry which proved they were failing to meet the aim of being “clear, fair and not misleading”.

EFAMA’s intervention comes days after Britain’s Financial Conduct Authority said it planned to investigate the impact of PRIIPS, with FCA head Andrew Bailey “concerned”.

The rules “are causing serious detriment to these same investors by mandating figures, particularly in relation to performance and costs, that at best confuse them and at worst mislead them”, EFAMA said in a statement.

Specifically, EFAMA said the method used to calculate transaction costs was producing confusing and unreliable figures, with costs consistently over- or under-estimated and sometimes even showing a negative figure.

As a result, it said, asset managers were being forced to make claims about their products that hindered investors’ ability to understand them.

Another contentious element of the PRIIPS legislation, which required managers to suggest possible future returns based on the previous five years, was also not working, it said.

“(It) assumes that a market will operate in a single direction effectively indefinitely, meaning that investors will be provided with excessively optimistic and linear performance scenarios.”

Meanwhile, with costs now averaged over a fund’s recommended holding period, investors could not compare products easily.

Calling “urgently” for regulators to fix the problems, EFAMA Director General Peter De Proft said that “time is of the essence as investors are currently presented with misleading information”.

Reporting by Simon Jessop; Editing by Kevin Liffey

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