Financial advisers and other financial services firms are being called on to engage and participate in consultations from the Financial Conduct Authority (FCA) and HM Treasury around the new disclosure regime, which industry experts are optimistic will provide better, more meaningful information for UK investors.
On 9 December the UK government announced it would repeal the European Union's packaged retail and insurance-based investment products (PRIIPs) regulation as a "matter of priority". It launched a consultation to seek views on an alternative framework for the disclosure with the FCA at the helm.
The regulator then launched a discussion paper on 13 December in which it set out initial ideas about the delivery, content and presentation of the future regime.
The initial reaction throughout the industry has been positive as experts felt the PRIIPs documents were too prescriptive and failed to give investors what they need - clear and concise information.
"At best the key information documents (KIDs) were unengaging and at worst required some firms to provide information that was actively misleading," explains The Lang Cat senior public affairs consultant Alison Gay.
The decision to remove the PRIIPs regime means advisers will no longer have to explain the complex documents to their clients and ensure they have seen it prior to them completing the transaction.
PRIIPs was deferred for most funds in the UK until 2026, however, there were certain products, including investment trusts, that were subject to it.
For these products advisers will no longer need to explain the "PRIIPs performance scenarios and transaction costs to an investor which are two points relating to the regulation which not only cause confusion to the investor but also the people manufacturing the investment products," explains Confluence senior product manager Shane Flatman.
As advisers await the new regime they are being urged to engage with the consultations as eventually, they will need to be on hand to explain these documents to their clients.
Gay says that firms should respond "even if it is only to very specific parts of the consultations".
"The FCA and the Treasury are always short of input from smaller firms and practical examples of problems and solutions are valuable, and are genuinely read," she adds.
One area the FCA is particularly interested in, and would have a direct impact on advisers, is who should have responsibility for the creation and delivery of disclosure materials.
"We want to re-examine the relationship between product manufacturer and distributor in the creation and delivery of disclosure and ensure that a replacement regime enables them to meet requirements under the Consumer Duty," the discussion paper stated.
It went on to note that product manufacturers have more detailed data on the product but distributors, including advisers, have more interaction with the end client and a better understanding of how the intended target market will want to see the information presented.
The FCA discussion paper closes on 7 March and the Treasury's consultation closes on 3 March.
Wishlist for new regime
When it comes to the documents themselves, across the board the industry is hoping for a clearer and more consumer-friendly document that is up to date with the digital world.
Quilter head of customer proposition Barry Cook states it "offers a great opportunity to put Consumer Duty into practice and help make KIDs more meaningful and consistent for customers".
However, there are different views on what that looks like and what would be important to include.
Morningstar director of policy research Andy Pettit would like the FCA to mandate machine-readable disclosures that combine future sustainability-related disclosures with traditional information.
Meanwhile, Susan Hill Financial Planning Chartered financial planner Susan Hill said having a document that shows the actual charges in a clear fashion is crucial.
"Advisers can spend hours looking for charges, we need charges for comparison of costs, consumers need to know what they are paying for a product and it should be like everything else we buy shown on the price tag upfront so at the till you know what you are paying," she tells Professional Adviser.
Having machine-readable documents and a single charge are both under discussion within the FCA consultation.
The FCA is also looking at the concept of layering, something that Gay feels is an "interesting one to pursue". Layering means providing certain information upfront, with further information later on.
"There is a lot of behavioural research that shows that different people engage with information in different ways - some people like lots of detail to inform their choices, other people get overwhelmed by detail," she comments.
EU challenges
However, while most corners of the industry are encouraged by the opportunity, some have warned it could create difficulties since it diverges from the EU's.
Flatman says he feels the UK and the EU should have "made great efforts to keep alignment in this area due to the added effort, costs and confusion the divergence has and will cause for product manufacturers and of investors".
He highlights that product providers who have a product offering inside the UK and EU will have to create two documents, creating additional costs.
"There is also confusion relating to the differing approaches in the document, specifically around performance, risk and costs," he explains.
Gay meanwhile, notes there might be challenges when it comes to incorporating disclosure of ESG information, which is being developed at an international level.
The UK is taking a different approach to the EU entirely on ESG, having launched the Sustainability Disclosure Requirements which the FCA said is "very different" to Europe's Sustainable Finance Disclosure Regulation.
Kathleen Gallagher is a freelance journalist
