However, judging by some of the findings from the Financial Conduct Authority’s (FCA) recent Financial Lives survey, there’s considerable scope for improvement when it comes to the information consumers reply upon. Upcoming regulatory changes could be exactly what’s needed.

Too many consumers don’t find financial services communications helpful

Financial Lives is the FCA’s ongoing research into UK consumers’ attitudes to money, their financial products and their experiences of engaging with financial services firms.

The latest survey found that 73% of people who had used any form of communications from financial services providers in the year to May 2022 found them to be useful. Which is, admittedly, a substantial number of people. But that leaves 4.9 million people – more than 54 Wembley stadiums-worth, or more than the entire population of Croatia, depending on your preferred metric – who found that the communications they received didn’t help at all.

Over the same period 4.3 million people received information from their provider that they couldn’t understand, wasn’t what was needed, or wasn’t timely.

This is a situation which has to change, and there’s no easy remedy – there are multiple reasons why the documentation clients receive is not ideal. Different clients will respond in different ways to the information provided.

Even firms which know their customers’ preferences very well are constrained by the requirements of regulation. No financial services firm has a free rein to communicate exactly as they would like to.

However, while occasionally frustrating, this protects consumers from the few bad actors who might attempt to hide relevant information or manipulate decisions.

New regulations suggest change for the better

The Consumer Duty places the onus on firms to provide communications that meet the needs of their customers, and which they can understand. That is why the work being done to replace the packaged retail and insurance-based investment products (PRIIPS) regime is a genuinely positive development.

The PRIIPs rules, and the key information documents (KIDs) that came with them, are a hangover from EU legislation (in the sense that they gave people a headache and made their day worse) because their target was never the UK financial services industry.

The rules came from a well-intended idea to standardise the information received by customers, across products and across different providers.

Originally the plan was that customers would receive a single page of information in a standardised format for any product they were interested in.

Unfortunately, and inevitably, it was impossible to devise a format that provided meaningful information everywhere. At best the key information documents were off-putting and at worst required some firms to provide information that was actively misleading.

The problem with implementing in the UK was the level of prescription in the rules. They gave very little room for adaptation – certain performance scenarios, for example, because of the way they had to be calculated and presented, gave very unhelpful information to clients.

The worst of these rules have already been addressed, with the FCA given powers to remove actively misleading content from the disclosure rules back in March 2022, including replacing performance scenarios with a requirement for narrative information.

A UK focus will mean more aligned regulation

Both the Treasury and the FCA have been consulting on what happens next. In July, the Treasury confirmed that the government will be entirely revoking all PRIIPs-related retail disclosure elements from legislation, on the basis that the FCA will deliver a new UK-specific retail disclosure regime.

The FCA issued a Discussion Paper in December about what that regime might look like, and we’re expecting further outputs and draft rules from that. One thing we can expect is a change to the rules for UCITS (Undertakings for Collective Investment in Transferable Securities) which are currently exempted from having to produce a PRIIPs KID in favour of a separate disclosure regime.

Given the similarities between products marketed to retail investors under both regimes, the government plans to integrate both PRIIPs and UCITS disclosure in the future retail disclosure regime.

From an industry perspective these are positive developments, as they mean that future rules will be designed for the UK market, and a matter for the FCA, rather than set by legislation.

This means it will be much easier to align it to other regulation, in particular the Consumer Duty and especially the rules around the consumer understanding outcome, which requires information to be demonstrably understandable by the target market of the firm.

One barrier to providing information that’s actually meaningful for your clients will have been removed. It’s a slow process, but we’re now moving in the right direction.

This article was written for International Adviser by James Street , Adviser Success Manager at Morningstar Wealth.

Currently, Ucits funds don’t have to abide by the Priips regulation in the UK, which means that they are not required to provide a key information document (Kid), but need to instead produce a key investor information document (Kiid), under the requirements of the Ucits directive.

The exemption expires on 31 December 2021, however HM Treasury said it intends to pass legislation in order to extend the deadline for a further five years to 21 December 2026.

This will be possible via a power that it was granted under the Financial Services Act 2021, which allows it to extend the current exemption for a further five years if required, the Treasury said.

It added: “While the current exemption will be extended by five years, depending on from the result of HM Treasury’s review of the UK retail disclosure regime, changes to the Priips regulation may be made – or a successor regulation may be introduced – sooner than 2026.

“In this scenario, considerations would be made to ensure a smooth transition to the new regime for all retail investment product providers, including those marketing Ucits funds.”

This is because the Regulatory Technical Standard (RTS) in the key information documents (Kids) “falls short of conducting a proper Level 1 review”, the trade body said.

It said that a review “is explicitly required by the Level 1 regulation and is overdue [by] more than one year”.

Efama believes this to be a “flawed review process, not tackling the heart of the issue”.

The problem with the Priips Kid is that industry players are finding it hard to create a “fully homogenised” retail investor documents including diverging investment and insurance products, with the goal of keeping information meaningful and not misleading.

Efama said: “In our opinion, both goals cannot be fully achieved simultaneously, and some trade-off will have to be found between meaningful and comparable information. This conundrum cannot be solved only by making technical changes at RTS level – despite the European Supervisory Authority’s (ESA) ongoing best efforts.

“We, therefore, understand and support industry associations and consumer representatives voicing their frustration that this issue is not tackled head-on through a Level 1 review.”

Lack of clarity

The trade body said that the current Ucits key investor information document (Kiid) functions well, and that the European Commission should work towards fixing “some of the current Kid’s biggest flaws before fund investors are confronted with the Priip Kid”.

Efama added that the revision of the RTS by the ESA is “a small step in the right direction”, but they have already been delayed for over a year, with the current deadline set for 31 December 2021.

It added: “The Commission’s original plan was to publish these new RTS by early 2020, ensuring that the financial industry would have sufficient time to implement wide-ranging changes before the end of 2021.

“This year’s deadline was originally meant as the official extension of the Priip Kid to retail funds after all the outstanding issues had been settled through the Level 1 review.

“[But] the RTS are delayed by more than one calendar year and there is still not enough clarity as to how they will ultimately look or when this process will be finalised.”

‘Massive operational undertaking’

As a result, Efama argues that fund managers and product providers simply do not have enough time to properly implement the “wide-ranging changes” in just 11 months.

This is why it claims that a 12-month extension of the Ucits exemption is necessary to make sure that the RTS, once published, are implemented correctly.

“It is important to bear in mind that the Priip Kid is one of the most visible documents to retail investors, meant to empower them to make the right investment decisions,” Efama said.

“If these documents are not implemented correctly, an essential tool will be missing to achieve the Capital Market Union’s goal of increased retail participation in the EU capital markets.”

The switch from Ucits Kiid to Priip Kid is a “massive operational undertaking” that requires a large amount of paperwork, with estimates stating this could require fund managers to produce “hundreds of thousands of Kids in aggregate”, the trade body said.

Additionally, the implementation of the rules cannot begin until the RTS are finalised, especially considering that the draft ones were rejected by the ESA in June 2020.

“Even small changes can have huge consequences in terms of operational implementation,” Efama added.

‘Recipe for disaster’

If this was not enough, fund management firms are struggling to mitigate the regulatory requirements with the effects of the global covid-19 pandemic.

Between allocating precise budgets for staff to transition to Priips within their IT plans for 2021; national lockdowns; and working-from-home requirements, fund managers may not be able to implement full changes effectively and within the timeline provided.

“The impossibly tight implementation deadline aside, it is equally important to talk about the future of the Ucits Kiid,” Efama said.

“The switch from the Ucits Kiid to the Priip Kid does not happen automatically and still requires timely legal changes to the Ucits Directive to ensure that retail investors are not presented with two Ki(i)ds simultaneously.

“This process should mark the end of the Ucits Kiid, meaning it should be fully deleted from the Ucits Directive. Considerations to keep the document alive for professional investors is without merit.

“The Ucits Kiid is, and has always been, a retail-investor document that is of little to no use for professional investors. It is also no longer fully Mifid-compliant and would require extensive revisions in the near future.

“Having two diverging different key information documents would also be a recipe for disaster.

“Efama, therefore, insists that another extension of the Ucits exemption of 12 months is necessary to ensure proper implementation.”

The Financial Services Bill is an “important first step in taking responsibility for our financial services regulation, ensuring that the UK maintains the highest regulatory standards and remains an open and dynamic global financial centre now that we have left the EU”, HM Treasury has said.

The bill will help promote openness between the UK and overseas markets, as well as maintain the effectiveness of the financial services’ regulatory framework.

John Glen, economic secretary to the Treasury, said: “Now the UK has left the EU, we must ensure we have a regulatory regime that works for the UK and allows us to seize new opportunities in the global economy.

“Following the work we’ve done to prepare for EU exit and ensure a smooth transition to a UK rule book, this bill is the next step in delivering a regulatory framework that boosts the competitiveness of our world-leading financial services sector and ensures that UK consumers are properly protected.”

Overseas market openness

Measures in the bill will introduce equivalence regimes for retail investment funds, in a bid to simplify the process for investment funds that are domiciled overseas to market to UK clients.

It will also “deliver long-term market access” between the UK and Gibraltar for financial services firms on the “basis of alignment and cooperation” now that both have left the EU.

The final measure put in place to deal with overseas markets will update the regime which regulates services and activities of third-country firms in the UK, and it will give the Financial Conduct Authority (FCA) an “appropriate degree of oversight” over firms that could register under the regime.

Regulatory framework changes

The bill will also look to amend the Packaged Retail and Insurance-based Investment Products (Priips) regulation.

It wants to enable “the FCA to make clarificatory rules regarding the scope of the regulation and removing reference to performance scenarios”.

The Financial Services Bill will also allow the Treasury to further “extend the exemption currently in place for Undertakings for the Collective Investment in Transferable Securities (Ucits) funds”.

Additionally, the Treasury is looking to increase beneficial ownership transparency for trusts. It will “clarify the government’s ability to enforce and make changes to extra-territorial trust registration powers”.

The bill will help to “streamline the FCA’s process for removing a firm’s authorisation and taking them off the public register, to improve accuracy and reduce the risk of fraud”.

Lastly, the legislation will make the appointment of FCA chief executive subject to a fixed, once-renewable, five-year term.

Limit disruption

Tim Fassam, director of government relations and policy at Pimfa, said: “Any move to safeguard the continued success of the UK’s financial services industry and our place as one of the world’s leading financial centres is always welcome.

“It is particularly welcome that the government is seeking to limit any disruption to the free flow of capital markets while at the same time seeking to maintain the UK’s world leading prudential standards as we prepare for life outside the single market on 1 January 2021.

“We will be studying the bill in detail and is keen to continue to work with government, the regulator and all other stakeholders to create an effective financial series regulatory regime that balances the needs of consumers and our industry alike.”

The funds offer fully hedged US dollar and euro share classes in addition to a sterling option, the firm said, and are invested in assets including international equities, UK equities and fixed interest. 

The range consists of Marlborough’s Defensive, Cautious, Balanced and Adventurous funds, which are fully managed by the firm’s multi-asset team. 

More to follow

Linda Johnstone, Marlborough Group’s international head of business development, said: “Advisers appreciate our partnership approach and an increasing number are recognising the value of our all-in-one investment solutions. 

“We’ve seen a significant increase in demand for our high-quality multi-asset portfolios and we’ve responded by expanding international distribution from Europe to now encompass Singapore and Dubai, with more jurisdictions to follow.” 

The fund of funds range is available through a number of life companies and international investment platforms.