Fund groups are under pressure to disclose ever more detail in their fund literature, in the face of a regulatory push towards greater transparency.

Keeping up with ever-changing regulatory standards in financial marketing is nothing new, but it poses a perennial problem for marketers: how to create content that will be useful and readable for the end-user, while remaining compliant.

The challenges of evolving regulation

In 2011 in the EU, Key Investor Information Documents (KIIDs) were introduced as a new piece of fund literature for Undertakings for Collective Investment in Transferable Securities (UCITS) funds in a drive to pair disclosure with clarity. KIIDs were designed as a two-page document outlining the essential features of a fund, including risk/reward profile and charges, to allow investors to see key points at a glance and compare funds more easily.

At the start of this year came the successor of KIIDs, Key Information Documents (KIDs), applicable to any fund which falls under the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation. This will include UCITS funds from 2019 so fund groups may have to change their UCITS KIIDs to PRIIPs KIDs to maintain compliance. Confused? Click here for a useful comparison of the two documents.

Although the regulators’ aims are laudable, the result has been an avalanche of paperwork. More fund documentation has had to be created to meet requirements, making the investment space increasingly impenetrable to would-be investors.

Have KIIDS made things simpler for investors? Financial advisers say no, and that in fact the extra paperwork just leads to more confusion for the end investor, if they even bother to read it.

Financial advisers complain that documents like KIIDs are not tailored to the reader. For example, the documents might contain information about other share classes and maximum charges, which means they will show the wrong pricing information for an investor who is buying a fund through a platform.

How does MiFID II affect things?

The introduction of MiFID II, a huge piece of EU legislation, has added further complications. Under MiFID II, the cost of external research can’t be absorbed in fund fees. Most UK fund groups are shouldering the cost of third party research themselves, but those that aren’t will need to spell this out in all their fund documentation.

And both MiFID II and PRIIPs place heavy emphasis on target markets for funds, which means asset managers may need to update the wording in their fund documentation. Regulators want firms to focus on expected investor outcomes and prove suitability of products for that target market. Although tricky for fund groups from the point of view of product governance, especially the need to seek feedback that funds are actually being used as intended by the target audience, this could present an opportunity for marketers to better understand the needs of their investors.

Regardless, it will present another huge challenge for marketers who need to include the necessary information while also making it clear, easy to understand, and engaging.

Additional fund literature requirements

Compliance departments in asset management firms must ensure that a huge amount of technical information is included in fund documentation. Fund literature needs to convey information about investment processes and policies, risk and volatility, who the fund is suitable for, fees and charges, performance, dealing and valuation frequency, the application and redemption process, complaints handling, compensation, and dividend policy.

The FCA is also consulting on whether to tighten the rules around how fund objectives are explained to investors in documentation, and whether fund groups should have to give more detail about how they use benchmarks, especially to compare past fund performance. The regulator is concerned that use of a ‘flattering’ benchmark can convince an investor that the fund has performed well. In April the FCA said: “We propose that if a fund has benchmarks, their use must be explained and referenced consistently in consumer facing documents.” It is also looking at how non-financial objectives, such as the environmental or social aims of a fund, should be disclosed.

This could add yet more detail into a stack of fund documentation that already includes KIIDS, factsheets, prospectuses, Supplementary Information Documents (SIDs), annual reports, monthly commentary, and application forms, among other things. With such a large volume of fund material for investors to contend with, the onus is on fund marketers to make it as user-friendly as possible.

So how can fund literature be improved?

How can marketers reinvent fund literature with the end investor in mind, while staying on the right side of regulation?

  1. Moving to a digital-first mindset

Believe it or not, many fund groups are still thinking in terms of traditional paper factsheets and printed brochures.

Moving to a digital-first mindset might help improve the user experience. Keep in mind, this doesn’t mean just uploading printed documents to a digital hub for investors to download, but rather considering how you could present the necessary information in a less dense, more readable way, perhaps in bite-sized chunks on a microsite with the most crucial information presented first.

  1. Getting creative

Design is important here, as is grouping information sensibly and logically. Graphs, tables and infographics could be made cleaner, simpler and interactive in a digital format.

Information about fund process and investment philosophy does not need to be relegated to just a dry paragraph on a fund factsheet, it could perhaps be presented better in other ways, using video, animated infographics, short fund manager podcasts or vlogs.

  1. Optimising copy

Copywriting should be an important priority for marketers. Reduce financial jargon and legalese to a minimum and instead use plain English. Think about where you can use shorter, punchier sentences. Consider breaking out key information in bullet points or boxouts rather than long paragraphs of prose. Can the information you are trying to convey be better presented visually, in an infographic or diagram, for example?

Avoid unnecessary repetition and look critically at every piece of information you are including to avoid disclosure for the sake of disclosure.

Yes, certain disclaimers and small print might need to be written in a particular way, but there is no reason why the majority of fund material cannot be written in a less formal, more engaging manner so as to show the reader is not being forgotten.

Examples of best practice

One fund group that has taken a good approach to how it presents fund material is Woodford Investment Management.

The ‘Fund Facts’ pages on their website give the same information as on the factsheet and as other firms would, but it is clear and nicely presented.

Questions and bullet point answers are included on fund information web pages, including for example ‘Who is this fund suitable for?’ and, crucially, ‘Who is this fund not suitable for?’. The Q&A format gives investors important information at a glance.

BlackRock also presents fund information well on their website, spreading it out with plenty of white space. Investors can click on different tabs to get snapshots of performance, key facts, and holdings, while the denser literature such as the prospectus and annual report is gathered all in one place. A visual ‘risk indicator’ is featured prominently to give investors a clue as to the risk level of each fund, and an interactive map reveals the fund’s geographical exposure.

Investors don’t want to waste their time wading through reams of dry fund material, they need easy access to vital product information. But fund marketers can’t reinvent the wheel – they must follow a proscribed format in some of their fund literature. It’s a tricky balancing act. This is why as marketers it is all the more important to be creative where possible, while keeping the end investor in mind at all times.