Opinion: Priips and the unusual alliance

The European funds industry group, Efama, and the organisation representing the industry’s customers, Better Finance, had to ignore their differences and focus on their similarities to arrive at a joint statement on investor protection.

Efama, which is the European Fund and Asset Management Association, and Better Finance, an investor and financial services users federation, released a joint statement last week on ‘packaged retail and insurance-based investment products’ (Priips), a €10 trillion industry. It called for past performance figures to be included in the investor documents that will accompany Priips-regulated vehicles.

These documents, known as ‘key investor documents’ (Kids), are likely the only documents retail investors will read when buying investment funds. A fund prospectus is just too long and complicated.

Although past performance may be no guide to the future, at least investors can know if a product ever made money.

This is why Better Finance wants past performance included in Kids. And it is why the group was critical recently of the financial services industry for apparently not taking a similar stance when supporting MEPs in their rejection of the so-called regulatory technical standards (RTS). RTS detail the mechanics of how a regulation works in practice and the Priips RTS did not call for past performance figures to be used in Kids.

Rejection
The rejection of the RTS happened when ECON, a European parliamentary committee, recommended that MEPs voted down European Commissioners over the proposed RTS (which MEPs did do on September 14). The consumer group said it welcomed the rejection – but for different reasons to the financial services industry.

“Better Finance however regrets that the stated reasons [by ECON] for the proposed resolution for rejection of the RTS include only those advocated by the financial industry, omitting the most crucial and critical issue for EU citizens as savers, which is the elimination of past performance disclosures…”

The statement appeared to suggest Better Finance felt it was alone in calling for use of past performance figures. A reasonable inference might also be that product providers – whether for marketing reasons or operational difficulties – had been keen to let this particular detail drop.

Funds Europe understands that the phone in Better Finance’s Brussels office was ringing shortly after its statement. On the other end of the phone was Efama, whose office lies 20 minutes walk away from Better Finance.

Efama was keen to point out that it had raised concerns publicly about the non-inclusion of past performance figures – despite being a member of the financial services industry.

The phone call was cordial, because Efama recognised there was common ground between itself and Better Finance – a group that, by rights, should be the nemesis of any financial services trade body.

Gabriela Diezhandino, Efama’s director of public policy, told Funds Europe: “Even if Better Finance and Efama may have diverging views on other issues, both organisations share common concerns with regards to the Priips Kid rules which are crucial for end investors.”

The two groups co-signed the joint letter to underline the importance of past performance in Kids so that investors can “know whether the product has made any money or not”. The groups also called for disclosure of costs and fees to be fixed, “in particular relating to the misleading calculation methodology of transaction costs”.

A Better Finance spokesman said the group was aware of Efama’s previous support for past performance figures and that it hadn’t meant to imply criticism of Efama; it was simply concerned that past performance had not been a reason given by MEPs in their rejection of the RTS.

An unusual alliance
Perhaps there was just a minor misunderstanding between Efama and Better Finance. Perhaps it was just a question of semantics in Better Finance’s statement. Perhaps it doesn’t matter: at least the cordial phone call made by Efama resulted in an alliance – one as unlikely as Greenpeace and Chevron, but one which may lead to a stronger lobbying effort in Brussels.