The Personal Investment Management & Financial Advice Association (PIMFA), UK's personal investment management and financial advice association, has joined the Investment Association (IA) in calling for an urgent review of the packaged retail and insurance-based investment products (Priips) regulation.
Before the Priips regime came into effect on January 1, 2018, the financial services industry expressed concern that potential flaws in the design of Key Information Documents (Kids) could result in investors receiving misleading information ahead of transactions. Those concerns have now been realised, according to PIMFA's chief, Liz Field (pictured).
The fundamental purpose of the Priips regime is undermined if Kids fail to provide accurate, timely and clear information to investors, according to Field. "In instances where Kids provide misleading information - regardless of product providers' compliance with detailed Kid content requirements - advisers and distributors should not be expected to 'paper over the cracks' by providing 'additional explanation' to investors," said Field. "The ad hoc correction of documents that are a matter of regulatory requirement should not be undertaken lightly - as well as creating further inconsistencies in the way individual products are presented to investors, such an approach may result in wholly unreasonable liabilities for advisers and distributors."
Over recent weeks, product manufacturers, wealth managers, financial advisers and industry commentators have drawn attention to problems with the calculation methods mandated by the Priips Regulation which has resulted in product risk and performance data not being fit for purpose, and 'is anything but "clear, fair and not misleading" and that does nothing to help investors compare different products or to make properly informed investment decisions, according to Field.
As a consequence of these issues and to voice the concerns of its members, the trade body has joined with the Investment Association in calling for an urgent review of the new Priips regime. In addition, PIMFA is calling on the UK Financial Conduct Authority (FCA) to provide further clarification of its recent suggestion that firms selling or advising on Priips should address potentially misleading information in Kids "by providing additional explanation as part of their communications with clients".
The concerns from advisers regarding Priips are mostly about the inability of most retail investors to understand much of the info within the Kid and thus concerns about the real value of the information to consumers, according to Paul Stanfield, CEO, Federation of European Independent Financial Advisers (Feifa) and secretary general, European Federation of Financial Advisers and Financial Intermediaries (Fecif).
"Most of the feedback that I receive from our member firms is that they have drastically reduced or ceased using structured products at some stage in the recent past," said Stanfield, adding that Priips/Kids have become "fairly irrelevant to them", regarding structured products.
SRP data shows however that since 2011 the sales volume of structured products going through the advisory and intermediary channel in the UK overtook the sales volume going through the bank's direct salesforce channel which dominated sales for years. In 2017, over 250 products were marketed via UK advisers which raised over £1.1bn (€1.3bn).
Globally direct sales are the main means of distribution of tranche-based products across markets (around 80,000 products sold in 2017 / US$242bn) with advisers still playing a marginal role (around 7,000 products/ US$17bn).
Issues around the implementation of the Priips Kid regime since the beginning of the year have raised questions about the division in the different segments of the industry. On one hand, insurance companies have opposed to the overly complicated methodology for calculating costs and risks, while the fund management industry has felt at a disadvantage by dropping the use of past performance in favour of future performance scenarios. The structured product market has repeatedly raised questions in relation to various key areas of uncertainty in the level 1 and level 2 texts, such as territoriality, secondary market, grand-fathering and gold-plating, and is calling for a review of the level 2 text (RTS).
"Eiopa is based in Frankfurt and represents the insurance industry and Esma is based in Paris and represents the banking industry," said a market source. "It seems there has been miscommunication. This raises questions about the viability of creating a level playing field between different products and markets that function in a very different way."
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