A winning edge with KII

Asset managers are increasingly viewing the new Key Investor Information (KII) requirement as an opportunity to win investors ahead of their competition.

A poll in October by the financial website Ignites Europe found that asset managers were exactly split on whether KII could be utilized as a marketing tool to promote their funds.

Under the UCITS IV directive, which came into force across the European Union this year, fund promoters must produce KII by July 2012 at the latest. It must be made available prior to subscription and follow strict criteria in content and format.

If the poll reflects wider sentiment, many managers are now readying KII in the hope of gaining a competitive edge over rivals during challenging market conditions.

An overview of the core purpose of KII may explain why. It must be written in a “brief manner” and in “non-technical language”, drawn up in a common format which allows for comparison, and presented so that it is likely to be understood by retail investors.

In other words, the KII must explain the proposed investment and above all the asset manager’s investment strategy in a way that investors can understand.

Asset managers, who are already facing difficulties in producing KII to meet their legal obligations, may now also find themselves at a competitive disadvantage if their rivals are writing KII to a higher standard.

The situation in Germany is particularly pressing. Managers there were required to produce KII for existing funds from July this year (see our map), while other key EU markets have opted for a one-year transition period ending 1 July, 2012.

Ignites Europe has also reported that BaFin, the German financial regulator, said it was “too early” to provide asset feedback on the quality of their key documents despite the fact that several early examples available in the German market have failed to impress market observers.

They say some of the KIIs available in the German market have raised concerns that asset managers are not exploiting the opportunity to provide investors with concise information about a fund before they invest.

It also claimed that managers are struggling with their obligation to use plain language, while others are suspected of copying and pasting existing information from their simplified prospectus, which the KII replaced.

A key differentiating factor for asset managers will be the quality of KII drafting. Remember, it will be the first document an investor sees, and probably also the only one they will examine at length. The key question is how can fund promoters set their products apart in the huge mass of other investment products that all produce KII?

The KIIs we have seen across all jurisdictions are generally not meeting plain language requirements. They are merely meeting the pure legal obligation to squeeze information on to two pages.

Quality drafting – not only gathering information and formatting – makes a difference. Only asset managers that have understood how to write their KII, and more importantly their investment strategies, will be able to turn the KII into a success and a core part of their marketing documentation.

Plain language is about putting yourself into the investor’s shoes. It is useful to think of it as a quick user-guide for an electronic device. All have them, but few are really useful and well written.

Distributors are increasingly under pressure to deliver advice and investment education to investors. With masses of documents to handle, we consider that distributors will increasingly favour investment products with well-written KII, so they can focus on their role of providing advice instead of trying to discover what a product is all about.

Martin Bock
Senior Manager, Fund Markets
Products & Client Segments

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