Some fund providers in France could be misleading potential clients with computer-generated future performance scenarios used in marketing materials, the counrty’s financial regulator is warning.
Future performance simulations are sometimes misleading and can be “overly optimistic” in their return predictions, the Autorité des Marchés Financiers (AMF) said.
More firms are offering potential clients the option of performance simulations as part of their marketing of investment solutions and the AMF has launched a consultation to clarify the regulations that apply to firms.
The AMF said it wanted to help guide investment professionals operating in France, while also protecting investors. The AMF is “taking a closer look” at the performance simulators firms use for private investors prior to providing advisory or investment services.
Potential clients normally fill out standardised online questionnaires with information such as the level of initial investment, monthly contributions, chosen risk profile, and the return they hope for at the end of a period of time.
Algorithms generate an estimated trajectory for the value of the client’s investment, with a range of possible scenarios from the most pessimistic to the most optimistic, the AMF said.
These simulations are provided to clients prior to the performance of any advisory or investment services.
Launching the consultation – which closes on January 20, 2017 – the regulator said: “The AMF has seen an increase in the use of tools that simulate future performance. These can be found online or through an investment advisor, may be offered by traditional or non-traditional investment firms, and are used to help market investment solutions such as financial instruments and discretionary management services.”
The AMF also said: “However, these instructional tools sometimes generate potentially misleading and/or overly optimistic information. The regulations that apply to the various firms capable of offering such services need to be clarified.”
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