Response to joint Discussion Paper on Key Information Documents (KIDs)

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2: Do you agree with the description of the consumer´s perspective on risk expressed in the Key Questions?

We are in agreement that the description in the Key Questions are appropriate.

3: Do your agree that market, credit and liquidity risk are the main risks for PRIIPs? Do you agree with the definitions the ESA’s propose for these?

After considering the risks for PRIIPs, we agree that the market, credit and liquidity risks are the most relevant. While we feel these risk definitions should be the foundation for the development of the risk indicators we question whether the average retail investor of these products will understand these. The risk outcomes will need to be communicated in a way investors will understand to ensure the context associated with the risks are clear.

4: Do you have a view on the most appropriate measure(s) or combinations of these to be used to evaluate each type of risk? Do you consider some risk measures not appropriate in the PRIIPs context? Why? Please take into account access to data.

We agree that the measures to evaluate each risk are appropriate in the context of PRIIPs. The key issue, though, is to make them relevant to the average retail investor without unintended consequences.
For example a tracker fund may have a high average volume traded, but only for it to remain within the terms of its investment mandate.
There are many different PRIIPs, with varying features, for which a universal set of measures would not be appropriate.
We have a concern that, as presented, there is an implication that firms are able to predict outcomes, which could lead retail investors to believe there is some degree of certainty where, in reality, none exists. This cannot be allowed to occur and measures should be introduced to prevent confusion and misinterpretation of the information disclosed.

5: How do you think market, credit and liquidity risk could be integrated? If you believe they cannot be integrated, what should be shown on each in the KID?

See answers for questions 15 – 26

6: Do you think that performance scenarios should include or be based on probabilistic modelling, or instead show possible outcomes relevant for the payouts feasible under the PRIIP but without any implications as to their likelihood?

We considered a probabilistic approach, but this presented issues. A probabilistic approach will be always a historic view based on economic conditions, which may not be expected to be recreated for some time. It would also be complex for PRIIPs involving more than one fund.

7: How would you ensure a consistent approach across both firms and products were a modelling approach to be adopted?

We felt that the answers to questions six and seven were intrinsically linked. On reviewing the example options, we felt that example 2 is more descriptive when used in conjunction with option 2.
Regardless of the scenario basis, the importance of communicating that the information is for illustrative purposes only and not a guarantee of the performance experience of each retail investor cannot be over-stressed.
The use of realistic growth rates in illustrations is imperative. Understanding that the term length will make any projection figures increasingly speculative should be taken into account in the development of any prescriptive parameters and accompanying narrative.
We considered the consistency issue and it was agreed that performance scenarios need to allow comparability across the market and to deliver the intended information to retail investors.
Overall we felt that the probabilistic basis was not the best method for calculating performance scenarios. Regardless of the methodology adopted the need for it to be realistic, in terms of reasonable expectations of the immediate future, regularly reviewed and prescribed is essential in order to achieve consistency.
In the UK in the late 1990’s firms were required by regulators to use performance examples which many believed were unachievable in the market conditions experienced at the time. The use of unachievably high growth rates in disclosure documents, at that time, was due to both the Regulator’s inability to quickly react to market changes and prescribe new realistic rates and Providers systems being less flexible and requiring longer lead in times for changes.
This must be avoided in any new regime so that a retail investor’s reasonable expectations are not unfairly skewed by disclosure documents and do not reflect the industry’s common view of investment prospects.

8: What time frames do you think would be appropriate for the performance scenarios?

Given the fact that there are many different PRIIPs with a variety of product features, an arbitrary period for all performance scenarios may be considered inappropriate.
We believe that the time frame should be based on the maturity date of the product, with an interim period of, for example, five years where appropriate to the product, or a period reasonable for the investment to be held, where there is no set maturity date.
We also feel that performance scenarios should reflect the typical experience of investors in the early years, especially where there are penalties for early redemption.
We note the comment that a decision is required to calculate performance scenarios on a standard payment and pay out for all PRIIPs, or to vary the information depending on the actual product. We consider it essential that the performance scenarios reflect the characteristics of the relevant PRIIP, otherwise the retail investor’s actual experience could be very different from what is illustrated.

9: Do you think that performance scenarios should include absolute figures, monetary amounts or percentages or a combination of these?

Using percentages for the performance scenarios isn’t always illustrative of the impact of the effect of performance, especially for large premium sizes.
Overall, we consider the best way to communicate performance scenarios to retail investors is by using monetary amounts, based on a typical amount invested, or if space permits the minimum amount accepted by the Provider and one or more higher amounts.

10: Are you aware of any practical issues that might arise with performance scenarios presented net of costs?

We are not aware of any practical issues, but performance scenarios must include the effect of costs and charges. If the scenarios are presented without taking into account costs. We believe that the average retail investor would have difficulty in combining the gross figures with information on costs presented elsewhere in the KID in order to reach the net result. This would make it more difficult for them to compare products, as more factors have to be taken into account, particularly if multiple scenarios are included. Presenting a net figure that takes into account both investment growth and charges would facilitate comparison and this could be presented alongside the gross performance figures for the benefit of those who are interested in knowing this.

11: Do you have any preferences in terms of the number or range of scenarios presented? Please explain.

Care needs to be taken not to overemphasise expected returns. The members who considered this paper with us concluded that three scenarios would be sufficient to demonstrate that different outcomes are possible.
We would again stress it is essential that any performance scenarios are accompanied by an explanation that these are for illustrative purposes and not a guarantee of the actual experience of the investor.'

12: Do you have any views, positive or negative, on the different examples for presentation of a summary risk indicator? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.

We have no specific preferences after reviewing the examples given and it was agreed that the narrative accompanying the summary risk indicator was more important than the image itself.
We would add that terms such as ‘low risk’, have in themselves no real meaning and should be avoided and replaced by a narrative dealing with possible impacts on capital and return.
After fully reviewing the examples provided the consensus view was that multiple images to show risk made the communication more complicated.
If achievable through a common calculation basis, a single view would be preferable.

13: Do you have any views, positive or negative, on the different examples for presentation of performance scenarios? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.

We have no specific comment to make, which has not been made elsewhere in this response.

14: Do you have any views on possible combinations of a summary risk indicator with performance scenarios?

The purpose of the summary risk indicator and performance scenarios is to ensure retail investors are given the information they require to understand their investments.
It is our view that any combination of performance scenarios and summary risk indicators should be based on those which achieve the best results in consumer testing.
There should be a commitment to undertake consumer testing on the proposals, but also testing with live retail investors who have purchased PRIIPs under this regime, prior to expanding the PRIIPs regime into other markets i.e. pensions. This should cover whether the disclosure material was of interest, played a part in their purchase and the level to which retail investors understood the material in the context of their purchase.
The UK has had a variety of PRIIPs style disclosure regimes since 1995, but there is little evidence that the cost and resource of design, implementation and maintenance has had a material effect on improving retail investor understanding, nor any material investigation as to why this has been the outcome. Any future development of the disclosure regime must fully test the success of the previous iteration before moving forward with changes.
A report from the UK regulator shows little attention is paid to the current UK disclosure regime and there are lessons to be learned from this research.

15: Do you agree with the description of the consumer´s perspective on costs expressed in the Key Questions?

We agree with the descriptions in the Key Questions and feel that these are representative of a retail investor’s perspective on costs.
We do not feel percentage figures are meaningful to the vast majority of retail investors, who are more interested in overall effect rather than how costs breakdown.
We would also challenge whether most retail investors are interested in the Key Questions. The focus of most retail investors is on the outcome and not the finite detail about how this is achieved.

16: What are the main challenges you see in achieving a level-playing field in cost disclosures, and how would you address them?

See Q19

17: Do you agree with the outline of the main features of the cost structures for insurance-based investment products, structured products, CfDs and derivatives? Please describe any other costs or charges that should be included.

We have no additional comments.

18: Do you have any views on how implicit costs, for instance costs embedded within the price of a structured product, might be best estimated or calculated?

There are many types of PRIIPs and these will all have differing charging structures and associated costs.
In working to achieve a level-playing field and full transparency all types of costs for all types of PRIIPs will need to be included.
Some costs will be easier than others to define and explain, some indirect costs, such as those incurred through the day-to-day management of a fund e.g. asset trading broker fees, will be difficult for retail investors to relate to. Retail investors may not understand the reason they pay their share of these types of charges or even understand that at times additional costs have achieved enhanced returns and need not necessarily be a ‘bad’ cost.
To avoid misunderstanding of the separate charges, it is vital that the compound effect of charges is shown. While these could be displayed as both percentage and monetary amounts, a clear explanation of the monetary figures would negate the use of including percentages, which many retail investors find confusing.
We feel that if all of the costs incurred by a PRIIP are not included the outcomes communicated to retail investors, the aims of the Articles underpinning this regulation will not be achieved.
In considering the level playing field, although not entirely perfect, product type groups could be developed, which do have a close commonality of approach in these areas. Regimes could be developed separately for these product type groups i.e. insured investment, deposit, structured.
EIOPA will obviously need to ensure emerging new product types are attributed to a product group, or new ones created if no close fit exists.
It is imperative that the PRIIPs regime does not stifle product development to the detriment of retail investors and moves forward with market developments.

19: Do you agree with the costs and charges to be disclosed to investors as listed in table 12? If not please state your reasons, including describing any other cost or charges that should be included and the method of calculation.

See Q19

20: Do you agree that a RIY or similar calculation method might be used for preparing ‘total aggregate cost’ figures?

While both RIY and TER calculations are ‘correct ‘ measures for calculating costs, we feel that RIY is a more suitable method for preparing the total aggregate cost figures.
Consumer research must seek to understand the level of understanding that retail investors have for these terms, before selecting an approach and calculation method.
The chosen approach should be linked to the same performance assumptions covered elsewhere in the disclosure document.

21: Are you aware of any other calculation methodologies for costs that should be considered by the ESAs?


22: Do you agree that implicit or explicit growth rates should be assumed for the purpose of estimating ‘total aggregate costs’? How might these be set, and should these assumptions be adjusted so as to be consistent with information included on the performance scenarios?

If explicit or implicit growth rates are to be assumed in the calculation of aggregated costs, this must be the same rate as used within the performance scenarios.
Explanation would need to be given to ensure it is clear that these are accurate estimates at best, and are based on a specific number of growth rates (e.g. 3) and that the outcome is not a guarantee of the return that the retail investor can expect.
An assumption about the length of time the investment is held will also need to be made. This should be as our previous comments indicate in Q8. There will not be one term applicable to all PRIIPs and this must be taken into account in the decision making process.
Growth rate assumptions need to take into account the product, be aligned with current economic circumstances and be realistic to the experiences retail investors are expected to have.
For example, using current market conditions it may not be unreasonable to display outcomes based on a negative rate, a neutral rate and a positive rate within the assumptions, but these would have to be variable based on developing market conditions.

23: How do you think implicit portfolio transaction costs should be taken into account, bearing in mind also possible methods for assessing implicit costs for structured products?

See answers for questions 19 – 22

24: Do you have any views on possible assumptions that should be made, and how these might be calibrated or set?

As explained in our earlier answers, there are many different PRIIPs and each will have different costs associated with them, the standardisation of format should be flexible enough to allow for these differences among products and be realistic to the experience the retail investor will have. Aggregating likely costs into one figure while describing the possible types of costs incurred for that class of PRIIP would overcome this challenge.

25: What do you think are the key challenges in standardising the format of cost information across different PRIIPs, e.g. funds, derivatives, life insurance contracts?

We suspect that none of the examples given would be easily understood by the average retail investor, though example 6 (based on RIY) and example 10 (which uses monetary amounts) display factors in a more understandable manner.
None of the solutions suggested are perfect. In our view the key is to illustrate the compound effect of costs over long-term investment and a method such as RIY does go some way to address this.
We appreciate that providing accurate estimates of the effect of costs on performance over time is extremely difficult.
We believe that the theory behind the RIY calculation is the right one, but that this could be displayed and explained in a more appropriate way to retail investors. For example a range of descriptive terms, such as ‘effect of costs on returns’ should be consumer tested and replace industry jargon such as ‘reduction in yield’.
As our previous comments indicate, our preference is for figures to be shown in monetary terms and not percentage amounts.

26: Do you have a marked preference or any objection for any of the presentational examples? If so, why? Please provide any alternative examples which you believe could be useful.

See answers for questions 15 – 26

27: In terms of a possible breakdown of costs, are you aware of cost structures for which a split between entry or exit costs, ongoing costs, and costs only paid in specific situations or under specific conditions, would not work?

Individually illustrating the various risks is likely to be too complex for retail investors and could lead to an overemphasis of the risks in relation to the other information presented in the KID.
We feel aggregating the risks would be the most sensible approach to show retail investors the overall effect of the risks they will be subject to.
Aggregation will no doubt require some form of weighting approach to deal with bringing the individual risks together into one outcome.
The narrative section accompanying the risks is key to providing retail investors with the information required within the KID. The narrative should also highlight the consequences, explain the summary risk indicator and provide an understanding of the effect of the risk on the investments made.
For example, the narrative accompanying a with-profits fund could explain that its risk profile appears higher than warranted as the fund is managed to achieve smoothing and reduce the volatility risk.

28: How do you think contingent costs should be addressed when showing total aggregated costs?

See answers for questions 15 – 26

29: How do you think should cumulative costs be shown?

Considering the disclosure of costs is far more complex than agreeing or disagreeing with the statements provided in the prescribed Key Questions above.
In answer to questions 17 to 19, we are of the opinion that the most important factor to take into account is the level of understanding of the retail investor.
It is important to disclose all costs, but this should not add unnecessary complexity to the KID.
There are numerous costs associated with investing in PRIIPs and if all costs were disclosed individually this would require an understanding of how underlying investments are managed and operated.
Many retail investors do not currently have this knowledge and providing this level of detail is not likely to make the investment experience easier for the retail investor. More importantly it is unlikely to improve or affect the retail investors’ choice of product.
In addition, some PRIIPs may operate variable costs in the early years of investment. Explaining why these costs are incurred in such a way is very difficult, both in terms of what the variables are and how these fluctuate during the duration of the PRIIP.
Retail investors need to know the cumulative effect of the costs they incur and whether these will vary over the period of their investment, but this should not be overly complicated or require detailed explanation to enable retail investors to understand.
Variable costs are calculated based on numerous factors, which also vary. Attempting to accurately estimate or calculate these costs, pre-sale, in a way that is representative of the customer experience of the majority of investors will not be achieved easily. Including these costs within a KID will require detailed explanation and caveat descriptions to ensure the retail investor is aware what these costs are, how they vary and that they might not be the costs they incur. This adds a degree of complexity for which there appears no tangible benefit.
There are broad categories of products with similarity of approach and the presentation of costs should be different for each of the different product categories.
When allowing for costs within the performance scenarios, which we view as essential, there are likely to be multiple complicated calculations and how these are displayed to retail investors is of vital importance.
We feel that charges should be displayed in monetary terms, aggregated into a single ‘bottom-line’ monetary figure to be disclosed to retail investors.

30: Do you have any views on the identity information that should be included?

Providers should include their web address and telephone number in this section and state that it is registered with the NCA. The Provider’s postal address and details of the NCA registration number, etc. can be given in the small print at the bottom of the paper in the footer.

31: Do you consider that the criteria set out in recital 18 are sufficiently clear, or would you see some merit in ESAs clarifying them further?

The concept of complexity should be consistent across all EU legislative developments with regard to whether a KID comprehension statement is given and whether an appropriateness test must be conducted under the Insurance Distribution Directive (formerly known as IMD II).
Having different ‘definitions’ of complexity for these two purposes could cause confusion for retail investors as the product is deemed complex for one thing and not another. Either it is complex or it is not.
With regard to what is complex, some clarifying principles would be useful as this would give certainty to the industry and ensure consistency across the market.
In particular, clarity on whether a with-profits fund would be deemed complex for these purposes is needed. With-profits funds hold derivatives but only to ensure smoother returns in the fund and provide safety rather than as an investment asset in itself. As such, with-profits products should not be deemed complex like structured products.

32: Do you agree that principles on how a PRIIP might be assigned a ‘type’ will be needed, and do you have views on how these might be set?

PRIIPs should be named by legal class e.g. life insurance contracts and structured deposits, as this is the clearest description for retail investors and the most easily comparable.

33: Are you aware of classifications other than by legal type that you think should be considered?


34: Do you agree that general principles and as necessary prescribed statements might be needed for completing this section of the KID?

Our view is that general principles are sufficient for completing this section of the KID. Over-prescription of information could prevent innovation in the market.

35: Are you aware of other measures that might be taken to improve the quality of the section from the perspective of the retail investor?


36: Do you have views on the information PRIIPs manufacturers should provide on consumer types?

Specific information on target markets needs to be given for the majority of PRIIPs, as these are aimed, in particular, at retail investors. If a PRIIPs is aimed at a particular cohort of retail investors, a simple statement to this effect should be given.
Providers (as part of their product governance regime) have to set a target market and only promote the PRIIP to that market should be sufficient to cover the vast majority of PRIIPs.
We note the comments in relation to referring to the ability of the retail investor to bear investment loss. We consider this to be a duplication of other sections, it could cause unwarranted alarm, is always subject to the individuals’ personal circumstances and the balance of the other investments within their portfolio.

37: What is the key information that needs to be given to the retail investor on insurance benefits, and how should this be presented?

Retail investors need to be told if there are any insurance benefits. This can be achieved in a simple manner by informing them what will happen if the event occurs e.g. ‘if you were to die, the PRIIP will pay out the value of the underlying assets plus an additional 1% of life cover.

38: Are you aware of PRIIPs where the term may not be readily described, or where there are other issues?


39: Are you aware of specific challenges arising for specific PRIIPs in completing this section?


40: Are you aware of specific challenges arising for specific PRIIPs in completing this section?

No, however, space may be an issue for with-profits funds as they need to explain the Market Value Reduction which cannot be explained in a simple sentence.

41: Are you aware of specific challenges arising for specific PRIIPs in completing this section?

No (and we agree it is likely that the distributor may not be known and therefore generic detail on how to find information about them or complain may be the only possible content).

42: Do you agree that this section should link to a webpage of the manufacturer?


43: Do you agree with the assessment of when PRIIPs might be concerned by article 6(3)?

Yes. We would add that it may be necessary to signpost to separate information where only one fund is used. For example with-profits funds may require a degree of detail and explanation not possible to capture in 3 pages, with all of the other material required by these regulations.

44: In your market, taking into account the list of criteria in the above section, what products would be concerned by article 6(2a)? What market share do these represent?

We do not collect market data from our members so are unable to quantify. Most products offered in this market are based on the concept of a product ‘shell’ with numerous investment options so we anticipate virtually all Providers would make use of article 6(3).

45: Please provide sufficient information about these products to illustrate why they would be concerned?

Providers in the UK offer a product shell, i.e. an investment bond through which a retail investor can select from the Providers’ own range of funds, or increasingly, a selected wide range of the external fund universe (a fund ‘supermarket’ ) either through direct investment in those funds or via a fund which mirrors the assets of the external fund. It should be noted the fund choice options can run to many thousands of investment funds and the task of complying with these regulations in these circumstances should not be underestimated.

46: Do you have views on how you think the KID should be adapted for article 6(3) products, taking into account the options outlined by the ESAs?

Separating a product and fund KID is essential in the UK market.
We are of the opinion that the fund KID format should be specified at some level to ensure consistency.
We have concerns about the volume of material retail investors could face through different Providers interpreting the requirements in their own ways.
There is a danger that these regulatory requirements could force Providers to limit the product options and investment choices available to retail investors purely due to the inability to meet all the KID requirements within the stipulated 3 sides of information. Given that the retail investor will always receive 2 pieces of paper when printed we would again ask that consideration is given to allowing use of the 4 sides available where the complexity of the product requires additional information. This has to be preferable to the alternative of signposting and seems to make no material difference to the retail investor.

47: How do you consider that the product manufacturer should meet the requirements to describe and detail the investment options available?

Yes we feel this is reasonable, albeit we have concerns that this may force Providers to limit choices available to retail investors.

48: Are you aware of further challenges that should be taken into account?

As detailed above, it is difficult to see how Providers will meet this challenge when 1000s of investment choices are currently available to retail investors.

49: Do you agree with the measures outlined for periodic review, revision and republication of the KID where ‘material’ changes are found?


50: Where a PRIIP is being sold or traded on a secondary market, do you foresee particular challenges in keeping the KID up-to-date?

Yes, the Provider may not know of the legal owner or be able to do more than publish new material on a website to be viewed at the new owner’s inertia.

51: Where a PRIIP is offering a wide range of investment options, do you foresee any particular challenges in keeping the KID up-to-date?

This is already a major issue for UK insurers and investment Providers offering funds manufactured by other Providers and do not feel the new requirements add to this already difficult task.

52: Are there circumstances where an active communication model should be provided?

If an active communication model is considered a requirement on key fundamental changes, it is imperative the nature of the events considered likely to require the use of active communication are specified for all to follow.
The question of the materiality of a change requiring communication must be fully addressed to ensure consistent approaches.
Our preference would be for a clear message given to retail investors highlighting the need (via an advisor if they have contracted to receive updated advice periodically) to monitor their investments, note published changes and take action, where required.
The alternative is a requirement for frequent mass mailings which are in themselves counterproductive, often ignored and largely deemed ineffective.

53: Do you agree that Recital 83 of the MiFID II might be used as a model for technical standards on the timing of the delivery of the KID?

Yes, although it should be noted the retail investor also has a cancellation period in which to consider their investment decision, albeit on some products this may include exposure to investment loss. The retail investor will also have the option of using a number of different sales channels (face-to-face, distance/telephone, interactive). It would be useful to consider these and provide clarity on where different methods may impact on the provision of the KID.

54: Are you aware of any other criteria or details that might be taken into account?

Further consideration of any conflict with the distance marketing directive should be cross-referenced and reviewed prior to final decisions being made.
We would also add that in the UK, increments to existing policies are achieved by the creation of a subsidiary policy, sometimes with the same policy number, but often in UK law an entirely new legal contract.
There does need to be complete clarity as to whether increases to existing policies, effected by the creation of a new legal contract issued after the implementation date of the new PRIIPs regulations will require a new style PRIIPs disclosure.
If so, this will have massive consequences for the UK market, in terms of creating PRIIPs documents for legacy contracts, amendments to old legacy computer systems operating in run off. The burden of having to undertake these developments may cause insurers to consider whether to allow retail investors to increment old style business.
As mentioned above, the nature of the sales channels used needs to be considered in a number of areas covered by this consultation. For example, where the sales process is at a distance, such as by telephone it is likely that provision of the KID will be after the decision to invest has been taken (but before expiry of any contractual cancellation rights). The requirements of the distance marketing directive should be cross-referenced and reviewed prior to final decisions being made.

55: Do you think that the ESAs should aim to develop one or more overall templates for the KID?

Yes. The ESAs should work with industry and industry associations to produce a standard template for each of the main generic product ranges in scope (refer to table on page 12) initially. One standard template will not be prescriptive enough and is likely to allow too much flexibility for Providers, resulting in a document that will not be a useful tool for retail investors, especially for comparison purposes.

56: Do you think the KID should be adjusted to reflect the impact of regular payment options (on costs, performance, risk) where these are offered? If so, how?

Yes, for the reasons mentioned elsewhere in this response. In the UK some PRIIPs only allow regular payments due to the UK tax regime on exit. The return and cost issues will be different for regular contribution business than for one-off payment PRIIPs.

57: Are there other cost or benefit drivers that you are aware of that have not been mentioned? Please consider both one-off and ongoing costs.

We have no additional comments.

59: Are you aware of situations in which costs might be disproportionate for particular options, for instance borne by a specific group of manufacturers to a far greater degree in terms relative to the turnover of that group of manufacturers, compared to other manufacturers?


Name of organisation

Investment & Life Assurance Group