Unlocking KII

Key Investor Information (KII) comes into force in July for newly-launched UCITS funds and is predicted to fundamentally alter the way fund managers handle product information.

The KII requirement replaces the Simplified Prospectus and will be mandatory for all UCITS funds. Critically, KII must be handed out to investors prior to making their investment.

Preparing and distributing KII will create significant challenges in ensuring that the entire distribution network uses the most recent KII version, and can track which subscription was done on the basis of which KII. As a result, asset managers will enter a new era of document management, maintenance and dissemination.

KII is being introduced under the UCTIS IV directive in response to investor demand for more transparency. Similar structured documents are expected to be adopted by other fund vehicle regimes in Europe and Asia.

Most of the leading UCITS markets, except Germany, are allowing existing UCITS funds until 1 July, 2012 to switch to KII. However, it is expected that most fund managers will do this sooner.

The UCITS fund’s Management Company or the UCITS fund itself is ultimately responsible for preparing, distributing and maintaining KII. However, the volume of KII to be prepared, strict content rules and update frequencies, are likely to raise organisational challenges. KII must meet the following requirements:

• It can be a document or other form of durable medium appropriate to the type of investor, and must be prepared for each class of units. When printed, KII cannot exceed two pages but the limit is three pages for structured funds. Specific rules also apply to the minimum font size. The structure of KII, the sections it contains, the titles and the content requirement of each section are predefined by applicable regulation.
• The investment objectives must be in plain language, and there must be “practical information” covering among other things the name of the Management Company, the depository, the competent supervisory authority, and the date the KII was issued.
• The document must have a risk and reward indicator. Indication of the past performance must cover 10 years (five years in specific cases) and must include the past performance of a benchmark if applicable. In addition, charges must be given as real figures and cover fees for subscription, redemption conversion, performance and ongoing charges.
• KII must be updated at least every year at 31 December and made available within 35 business days. It must also be updated if material changes occur to the contents of the KII.

Investment managers should not view these requirements as a burden. Efficient document management technology can turn KII preparation and distribution into an industrial process at a relatively low cost. Specialised service providers are offering tailor-made outsourcing solutions designed to accommodate various needs of asset managers, ranging from web-based tools that manage the KII workflow to complete end-to-end solutions.

The KII requirement will also strengthen the ties between fund manufacturers, administrators and distributors to ensure the preparation and distribution chain for KII is seamless and efficient.

KII is not cost neutral nor “just another information document”, as some may argue. If it is executed properly, it is a coherent, uniform and efficient piece of information that is now at the centre of investor information and will change the operation of distribution channels and the way fund information is delivered.

It will enhance the knowledge of retail investors about their investment choices and will begin closing the gap between what asset managers consider as transparent product information, and what retail investors need to make informed choices. In short, it can help bring fund manufacturers and investors back together.

Martin Bock,
Senior Manager, Fund Markets, Products & Client Segments

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