Response to joint Discussion Paper on Key Information Documents (KIDs)
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Furthermore, while these questions focus on the main characteristics of risks and reward, the questions themselves use rather informal and negative wordings and are more concentrated on the risks. First, it is important that risk and reward features of PRIIPs are properly balanced. Second, the structure and presentation of the KID should not lead to an overly negatively sounding document. The issue of a balanced document should be looked at thoroughly in the consumer testing as well.
In the follow-up questions related to loss, care should be taken to ensure that capital guaran-tees protecting against market risk (e.g. provided by manufacturers) and capital protection (e.g. secured investor compensation or guarantee schemes) are not presented as being equal.
With this in mind, the credit and liquidity risks seem to be much more relevant for non-insurance-based investment products. For insurance-based investment products market risk is the most relevant factor. As regards liquidity risk, it should be taken into account that a fixed term is in many cases a valuable feature for the customer and should not be treated as a li-quidity risk, which could wrongly lead to the presentation of the product as an overall risky in-strument in the summary risk/reward indicator (see also reply to Q12). Quite to the contrary, the long-term nature should promote and encourage saving activity of consumers. As regards credit risk, insolvency guarantee schemes should be taken into account when assessing the credit risk. Moreover, Solvency II provisions ensure the financial soundness of insurers.
However, it should be emphasised that, as opposed to the consideration introduced in the discussion paper, the impact of inflation on the value of the PRIIP should not be included as one aspect of the market risk mainly because this feature is not included in pre-contractual information disclosure for other products (MiFID and UCITS for instance). In addition, inflation is not a risk that is inherent for PRIIPs but affects all investment products in the same way. Therefore, this information is not useful for retail investors nor does it increase comparability or transparency of products.
Articles 8 and 9 of Implementing Regulation 583/2010 outline that “the ‘Risk and reward profile’ section of the key investor information document shall contain a synthetic indicator” and provide a number of features of this indicator.
Therefore, the GDV has always assumed that both risks and rewards of a PRIIP are captured by a single indicator. In fact, when comparing UCITS and PRIIPs the ESAs mention the “Risk and Reward indicator of the PRIIPs KID” (page 108). In our view, this is the best possibility to acknowledge a strong correlation between risk and reward.
As already mentioned in the previous question, due to the large scope of PRIIPs, it should also be acknowledged that the inclusion of certain elements, relevant to one group of products, might be irrelevant for another set of products. Since credit and liquidity risks have little rele-vance for insurance-based investment products, qualitative measures and generic criteria seem to be appropriate for these risks. For the market risk, which is the most relevant risk for insurance-based investment products, quantitative measures together with generic criteria should be used.
In any case, the risk/reward indicator should not be based on historical volatility, because oth-erwise even positive deviations from the mean value would be considered as risks. Further-more, historical values do not have any real impact and, therefore, do not allow any conclu-sions on the future performance. Finally, due to the typically long terms of the contracts, a his-torical approach is unsuitable for life insurance products. Thus, the UCITS indicator is not suitable. Instead, prospective scenarios tailored to the characteristics of PRIIPs should be used to derive risk classes.
Probabilistic modelling should be considered for determining the risk/reward indicator of a product. For this, a sufficiently large set of stochastic economic scenarios should be used. The behaviour of a PRIIP under these scenarios should then determine the risk and reward class of a PRIIP. These scenarios should be then condensed into a risk/reward indicator, which is understandable and transparent for the retail investor. These stochastic scenarios themselves need not to be displayed to the retail investor. Moreover, this approach also ensures the com-parability of different PRIIPs.
Amongst the measures suggested, Expected Loss for a given Value-at-Risk seems to be the most appropriate measure for the market risk since it presents an average of the expected loss in the worst case. CTE (conditional tail expectation), which is a very similar measure, might also be considered as a suitable risk measure, i.e. for instance the average of the 10% or 20% worst economic scenarios. CTE is numerically very stable for many product catego-ries, especially insurance-based investment products, and easy to explain to the retail investor. Thus, it suits well for a risk/reward indicator. Furthermore, the CTE takes into account col-lective risk sharing mechanisms, which are an essential feature of insurance-based products.
Finally, since risks and reward as well as performance and costs of a PRIIP are strongly corre-lated, a throughout consistent approach and presentation of these features are needed.
These scenarios should be forward-looking, since it is often not possible to find suitable historical data for new products, especially for products with very long terms.
If there is no reference value, an even number of scenarios is preferable since otherwise the scenario in the middle is often misinterpreted by retail investors to be the most likely one.
Probabilistic modelling should be considered for determining the risk and reward of a product. For this, a sufficiently large set of stochastic economic scenarios should be used. The behaviour of a PRIIP under these scenarios should then determine the risk and reward class of a PRIIP. These scenarios should be then condensed into a risk/reward indicator, which is understandable and transparent for the retail investor. These stochastic scenarios themselves need not to be displayed to the retail investor. Moreover, this approach also ensures comparability of different PRIIPs.
Therefore, it is crucial that the properties of insurance-based investment products are taken into account in the modelling of the performance scenarios. For example, such products usually have a long term. Suitable scenarios are necessary to reflect the long term nature of insurance-based investment products. Moreover, since risks and reward as well as performance and costs of a PRIIP are strongly correlated, a throughout consistent approach and presentation of these features are needed.
In this context, comparability between the different products but only within certain product classes should be sought. Not useful scenarios would lead to additional complexity and confusion for consumers. Furthermore, the number and the usefulness of several scenarios with different time frames should be also looked at thoroughly in the consumer testing.
Finally, benefits of a PRIIP relating to biometric risks (death benefits, occupational disability income, surviving dependants’ provisions, etc.) should not be included in the performance scenarios but presented separately in a prominent manner.
It is necessary that the timeframe and other assumptions are set in line with the product features. For example, the term of the product should be reflected in the performance scenarios appropriately (whether it is 3 months or 30 years). Insurance-based investment products usually have a long term when compared to other investment products. This feature should be taken into account adequately.
Furthermore, the term of insurance-based investment products is usually only specified in the personalised advice and could vary significantly. Therefore, performance scenarios could be presented for several holding periods, which should be typical for the respective specificities of a certain product (e.g. the long-term nature of an insurance-based investment product). However, this could be difficult to achieve in a single document.
The monetary amount paid which is shown in the performance scenarios should correspond to the performance net of costs, since the costs should be included in the performance calculation.
Since the reward should be integrated in the risk/reward indicator, for comparability and simplification reasons, the same pre-determined pool of scenarios should be used for different risk/reward classes, if there are no reference values. By doing so, the riskier products should have a larger number and a wider range of scenarios. If there is no reference value, an even number of scenarios is preferable since otherwise the scenario in the middle is often misinterpreted by retail investors to be the most likely one. The growth rates used, however, should not be different for each class since this would impede comparability.
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.
Since risk and reward are strongly correlated a throughout consistent approach and a unifying presentation of these features are needed, see Q15 and Q16. Additionally, we consider it to be important that retail investors understand the trade-off between risk and reward, i.e. the possible reward for taking on a risk.
As regards the examples presented, it should be left up to consumer testing to find the most appropriate visualisation of the risk. Colours can be used when they do not diminish the comprehensibility of the information if the KID is printed or photocopied in black and white. However, colours should be chosen in a way that they do not mislead the customers. High risk is usually correlated with the possibility of a higher reward. Therefore, a traffic light colour scheme might be wrongly interpreted by the consumers in a way that products with a lower risk are always better. This is quite different from energy labels, where low energy consumption is always better.
In addition, the integration of risk indicators must not mislead customers into a wrong perception of overall risk. For example, the long duration of many insurance-based investment products is a desired feature for the customer and, therefore, not a liquidity risk and the classification as such would lead to a wrong impression of a risky product.
Since risk and reward as well as costs and performance scenarios are strongly correlated a throughout consistent approach and a unifying presentation of these features are needed – see Q14 for details.
As already explained in the reply to Q11, the number of performance scenarios should depend on the risk/reward class. Therefore, the GDV favours combination 2B (single visual element for the risk/reward indicator and single visual element for all performance scenarios as suggested in our replies to Q12 and Q5). As noted in the reply to Q13, the costs should be integrated in a consistent manner. In advance to question Q20, it can be best achieved by applying the reduction in yield approach (RIY).
The following example explains the overall concept: the risk and reward of a PRIIP in this example is assumed to be 3 out of 6. The resulting performance scenarios before costs for this risk/reward class are e.g. 2%, 4%, 6% and 8%. All relevant costs are then reduced in form of the RIY (total cost ratio). For simplification reasons, we assume that RIY equals 1.5%. This results in
performance before costs: 2% 4% 6% 8%
total cost ratio: 1.5% 1.5% 1.5% 1.5%
Performance after costs: 0.5% 2.5% 4.5% 6.5%
Then, the performance scenarios in monetary terms correspond to the performance after costs, that is, 0.5%, 2.5%, 4.5% and 6.5%.
We understand that the questions describe the perspective of the retail investor and should not be as such included in the KID. It is important that the Key Questions correspond to and do not go beyond the exact provisions of the PRIIPs Regulation.
Furthermore, while these questions focus on the main characteristics of costs, the questions themselves use rather informal and negative wordings and are only concentrated on the costs of the PRIIP and not on its performance. First, there is a strong correlation between costs and performance of the PRIIP. Therefore, an isolated presentation of costs is misleading for consumers and inappropriate. A consistent, integrated and properly balanced approach is necessary. Second, the structure and presentation of the KID should not lead to an overly negatively sounding document. The issue of a balanced document should be looked at thoroughly in the consumer testing as well.
As regards the questions related to the comparability of costs, the regulator should be wary of not creating a methodology which would impact the product design (pressure to adapt the cost structure of a product to be able to apply the EU-methodology).
In addition, the information on costs should be tailored to the features of the products appropriately so that the cost indicators are useful for the retail investors and allow them to compare within a certain group of products.
We believe that the correct definition of the cost term and the balanced presentation of costs and performance are crucial. Please refer to the crucial issues described in Q16 on features of insurance-based investment products, particularly in relation to different benefits and costs.
• guarantee of a given investment performance or a given level of benefits (capital guarantee protecting against market risk);
• protection against biometric risks (death benefits, occupational disability income, surviving dependants provisions etc.)
These features should be presented in the KID in a prominent manner, ensuring that the total picture of a PRIIP is balanced. The GDV is worried that the presentation of insurance related benefits might fall short in the KID.
We see big challenges not only on achieving a level playing field in cost disclosure but also in the correct definition of the cost term for insurance-based investment products. Therefore, a correct definition of the cost term for an insurance-based investment product is essential. First, it should be sharply and clearly distinguished between costs and premiums. Premiums – that is payments that directly finance the benefits of a PRIIP – should be never considered as costs.
The following specific features of insurance-based investment products are crucial and should be taken into account:
- Premiums for protection against biometric risks are not costs, since the retail investor receives insurance benefits for these payments.
- Capital guarantee protecting against market risk of the insurance-based investment products should be covered in the performance and risk section of the KID (more narrow spread between the performance scenarios), see our reply to Q15. In general, performance scenarios should be consistent with the information on costs included in the cost section of the KID: the higher the guarantees, the lower the risk class, and the more narrow the spread between the performance scenarios (e. g. a lower maximum value). This implies, however, that no fictitious, additional guarantee costs are assumed.
- Early redemption fees should not be treated as costs. These deductions are justified in accordance with actuarial principles and serve to protect the community of policyholders (e.g. against anti-selection). Then again, this issue should be better addressed in the section of KID on surrender value. In our view, it is important to inform the retail investors about the development of the surrender value of their PRIIP. Due to the limitation of the length of the document at least the ratio “surrender value / sum of contributions” should be presented for, say, 1, 5 10, 20 and 30 years.
- There are no surcharges according to the methods of regular payment chosen in the premium calculation. This would contradict the Consumer Credit Directive (2008/48/EC).
- Look through costs are sometimes not known to the PRIIP manufacturer, e.g. if the underlying fund a PRIIP invests in is not obliged to disclose certain costs.
Another major challenge is that the information on individual costs is difficult to compare for retail investors and, therefore, does not enhance transparency. Since the insurance-based investment products have terms that sometimes last over decades, only annualised costs are comparable for different PRIIPs in a consistent, robust and stable way. This becomes particularly obvious if products that have a term of 3 months are compared with products that have duration of 30 years. Thus, it is important to apply a suitable, transparent, comprehensive and comparable cost indicator. In our view, reduction in yield approach is the most appropriate method for the cost representation since it fulfils the above mentioned requirements.
Finally, there is a strong correlation between costs and performance of the PRIIP. Therefore, an integrated representation of costs is necessary for the retail investors to understand the link between the two.
The correct implementation of the approach, however, crucially depends on the appropriate definition of costs as described in Q16.
Furthermore, the costs are closely related to the performance of the PRIIP. Therefore, these quantities should not be presented in an isolated way (see Q15). It is important that the assumptions and the modelling methods are consistent so that the effect is not taken into account twice.
Again, it is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.
As pointed out in the table on pages 19 and 20, the information contained in KID should be comparable for different PRIIPs and its representation should be consistent, robust and stable. Since the insurance-based investment products have terms that sometimes last over decades, only annualised costs could achieve the above mentioned qualities of a cost representation. This becomes particularly obvious if products that have a term of 3 months are compared with products that have duration of 30 years. Therefore, the representation of annualised costs together with a reduction in yield approach is the most appropriate method for the cost representation, which is also very useful and understandable for the consumers.
Customers rightly expect the following equation in annualised percentage terms to be true:
Performance before costs – RIY = Performance after costs.
This should be taken into account and made apparent when presenting costs. Here, all costs of a PRIIP are included in the single RIY figure.
The correct implementation of the approach, however, crucially depends on the appropriate definition of costs as described in Q16. Another major challenge is that the information on individual costs is difficult to compare for retail investors and, therefore, does not enhance transparency. Thus, it is important to apply a suitable, transparent, comprehensive and comparable cost indicator. In our view, the reduction in yield approach is the most appropriate method for the cost representation since it fulfils the above mentioned requirements.
Breaking down costs into entry and ongoing costs makes it next to impossible for customers to judge the impact of costs. While it is technically possible in our experience it is not transparent, neither comprehensible nor comparable for customers.
Particularly for insurance-based investment products, only market risk should be captured by a quantitative risk/reward indicator complemented with a narrative explanation. Since credit and liquidity risks have little relevance for insurance-based investment products, qualitative information regarding these risks could be added within the narrative explanation of the risks if they are materially relevant for a product.
Here, we would like to stress again that the explicit long-term nature of many insurance-based investment products is often a valuable feature for the customer and should not be treated as a liquidity risk, which could wrongly lead to the presentation of the product as an overall risky instrument in the summary risk/reward indicator (see also reply to Q12). More to the contrary, the long-term nature should promote and encourage saving activity of consumers. In any case, early surrender should be discussed in another section of the KID (How long should I hold it and can I take money out early?).
Therefore, the representation of annualised costs together with a reduction in yield approach is the most appropriate method for the cost representation, which is also very useful and understandable for the consumers.
Moreover, we would like to refer to our reply to question 16. In particular, the following specific features of insurance-based investment products are crucial and should be taken into account:
- Early redemption fees should not be treated as costs. These deductions are justified in accordance with actuarial principles and serve to protect the community of policyholders (e.g. against anti-selection). Then again, this issue should be better addressed in the section of KID on surrender value. In our view, it is important to inform the retail investors about the development of the surrender value of their PRIIP. Due to the limitation of the length of the document at least the ratio “surrender value / sum of contributions” should be presented for, say, 1, 5 10, 20 and 30 years.
- Look through costs are sometimes not known to the PRIIP manufacturer, e.g. if the underlying fund a PRIIP invests in is not obliged to disclose certain costs.
It is, furthermore, important that retail investors receive products that suit their individual needs: especially the risk and reward of a PRIIP should correspond to the risk and reward preference of a retail investor. For any further assessment of retail investor’s needs, a personal advice is indispensable. This is, however, out of scope of the PRIIPs Regulation and is subject to a different legislation, e.g. IMD2.
Therefore, the provisions should be neither too narrow nor too specific so that the types could encompass the maximum useful number of retail investors.
• guarantee of a given investment performance or a given level of benefits (capital guarantee protecting against market risk);
• protection against biometric risks (death benefits, occupational disability income, surviving dependants provisions etc.).
These features should be presented in a prominent manner in the KID, ensuring that the total picture of a PRIIP is balanced. The GDV is worried that the presentation of insurance related benefits might fall short in the KID.
We would like to point out that difficulties might arise for PRIIPs that offer coverage against biometric risk. The features of these insurance benefits strongly depend on the different individual factors such as, for example, age and type of occupational activity. Therefore, a solution should be sought for an adequate presentation of biometric features of PRIIPs in the product KID.
Other products might offer the retail investor with a yearly choice between index participation and a fixed interest (for one year).
A solution might be that the investment options are divided into appropriate classes of comparable products. Then, from each class a representative KID should be chosen.
It might be even preferable for the retail investors to receive a personalised information document based on a provisional selection of possible investment options once the retail investor has made these. This would still constitute pre-contractual information.
We would like to point out that comparable difficulties might arise if a PRIIP offers coverage against biometric risk. The features of these insurance benefits strongly depend on the different individual factors such as, for example, age and type of occupational activity. Therefore, a solution should be sought for an adequate presentation of biometric features of PRIIPs in the KID.
In our view, it is, therefore, necessary that different templates are used for different types of KID. A classification according to the legal form of the contract or instrument seems to be appropriate. It is important that the KID only includes information which is relevant for the specific product. The information should be tailored to the features of insurance-based products, e.g. whether a payment is due now or in 30 years significantly impacts the costs and benefits.
For insurance-based investment products, both types, i.e. single and regular payment are equally important. Therefore, there should be a possibility to tailor the KID to both features in an appropriate manner. A one size fits all approach should be avoided since it will lead to consumers receiving misleading information.
2: Do you agree with the description of the consumer´s perspective on risk expressed in the Key Questions?
We understand that the questions describe the perspective of the retail investor and should not be included as such in the KID. It is important that the Key Questions correspond to and do not go beyond the exact provisions of the PRIIPs Regulation.Furthermore, while these questions focus on the main characteristics of risks and reward, the questions themselves use rather informal and negative wordings and are more concentrated on the risks. First, it is important that risk and reward features of PRIIPs are properly balanced. Second, the structure and presentation of the KID should not lead to an overly negatively sounding document. The issue of a balanced document should be looked at thoroughly in the consumer testing as well.
In the follow-up questions related to loss, care should be taken to ensure that capital guaran-tees protecting against market risk (e.g. provided by manufacturers) and capital protection (e.g. secured investor compensation or guarantee schemes) are not presented as being equal.
3: Do your agree that market, credit and liquidity risk are the main risks for PRIIPs? Do you agree with the definitions the ESA’s propose for these?
In view of the large scope, the proposed definitions are a comprehensible starting point. How-ever, it is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regula-tion, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.With this in mind, the credit and liquidity risks seem to be much more relevant for non-insurance-based investment products. For insurance-based investment products market risk is the most relevant factor. As regards liquidity risk, it should be taken into account that a fixed term is in many cases a valuable feature for the customer and should not be treated as a li-quidity risk, which could wrongly lead to the presentation of the product as an overall risky in-strument in the summary risk/reward indicator (see also reply to Q12). Quite to the contrary, the long-term nature should promote and encourage saving activity of consumers. As regards credit risk, insolvency guarantee schemes should be taken into account when assessing the credit risk. Moreover, Solvency II provisions ensure the financial soundness of insurers.
However, it should be emphasised that, as opposed to the consideration introduced in the discussion paper, the impact of inflation on the value of the PRIIP should not be included as one aspect of the market risk mainly because this feature is not included in pre-contractual information disclosure for other products (MiFID and UCITS for instance). In addition, inflation is not a risk that is inherent for PRIIPs but affects all investment products in the same way. Therefore, this information is not useful for retail investors nor does it increase comparability or transparency of products.
4: Do you have a view on the most appropriate measure(s) or combinations of these to be used to evaluate each type of risk? Do you consider some risk measures not appropriate in the PRIIPs context? Why? Please take into account access to data.
Article 78(3)(e) of the UCITS Directive states that key investor information shall provide infor-mation on the risk/reward profile of the investment, including appropriate guidance and warn-ings in relation to the risks associated with investments in the relevant UCITS.Articles 8 and 9 of Implementing Regulation 583/2010 outline that “the ‘Risk and reward profile’ section of the key investor information document shall contain a synthetic indicator” and provide a number of features of this indicator.
Therefore, the GDV has always assumed that both risks and rewards of a PRIIP are captured by a single indicator. In fact, when comparing UCITS and PRIIPs the ESAs mention the “Risk and Reward indicator of the PRIIPs KID” (page 108). In our view, this is the best possibility to acknowledge a strong correlation between risk and reward.
As already mentioned in the previous question, due to the large scope of PRIIPs, it should also be acknowledged that the inclusion of certain elements, relevant to one group of products, might be irrelevant for another set of products. Since credit and liquidity risks have little rele-vance for insurance-based investment products, qualitative measures and generic criteria seem to be appropriate for these risks. For the market risk, which is the most relevant risk for insurance-based investment products, quantitative measures together with generic criteria should be used.
In any case, the risk/reward indicator should not be based on historical volatility, because oth-erwise even positive deviations from the mean value would be considered as risks. Further-more, historical values do not have any real impact and, therefore, do not allow any conclu-sions on the future performance. Finally, due to the typically long terms of the contracts, a his-torical approach is unsuitable for life insurance products. Thus, the UCITS indicator is not suitable. Instead, prospective scenarios tailored to the characteristics of PRIIPs should be used to derive risk classes.
Probabilistic modelling should be considered for determining the risk/reward indicator of a product. For this, a sufficiently large set of stochastic economic scenarios should be used. The behaviour of a PRIIP under these scenarios should then determine the risk and reward class of a PRIIP. These scenarios should be then condensed into a risk/reward indicator, which is understandable and transparent for the retail investor. These stochastic scenarios themselves need not to be displayed to the retail investor. Moreover, this approach also ensures the com-parability of different PRIIPs.
Amongst the measures suggested, Expected Loss for a given Value-at-Risk seems to be the most appropriate measure for the market risk since it presents an average of the expected loss in the worst case. CTE (conditional tail expectation), which is a very similar measure, might also be considered as a suitable risk measure, i.e. for instance the average of the 10% or 20% worst economic scenarios. CTE is numerically very stable for many product catego-ries, especially insurance-based investment products, and easy to explain to the retail investor. Thus, it suits well for a risk/reward indicator. Furthermore, the CTE takes into account col-lective risk sharing mechanisms, which are an essential feature of insurance-based products.
Finally, since risks and reward as well as performance and costs of a PRIIP are strongly corre-lated, a throughout consistent approach and presentation of these features are needed.
5: How do you think market, credit and liquidity risk could be integrated? If you believe they cannot be integrated, what should be shown on each in the KID?
It is important that it is taken into account that the costs surpluses of the manufacturer can be deduced from the costs. Furthermore, for reasons of feasibility, the costs that only occur in certain scenarios should be presented separately and not be reflected by the cost indicator. However, costs that typically incur, but the nominal value of which is not known upfront, should be integrated in the cost indicator as a best estimate.6: Do you think that performance scenarios should include or be based on probabilistic modelling, or instead show possible outcomes relevant for the payouts feasible under the PRIIP but without any implications as to their likelihood?
It is of utmost importance that the retail investors understand the performance scenarios. Therefore, deterministic modelling with several different assumed returns is more suitable for the performance scenarios when these are used to illustrate the possible pay-outs.These scenarios should be forward-looking, since it is often not possible to find suitable historical data for new products, especially for products with very long terms.
If there is no reference value, an even number of scenarios is preferable since otherwise the scenario in the middle is often misinterpreted by retail investors to be the most likely one.
Probabilistic modelling should be considered for determining the risk and reward of a product. For this, a sufficiently large set of stochastic economic scenarios should be used. The behaviour of a PRIIP under these scenarios should then determine the risk and reward class of a PRIIP. These scenarios should be then condensed into a risk/reward indicator, which is understandable and transparent for the retail investor. These stochastic scenarios themselves need not to be displayed to the retail investor. Moreover, this approach also ensures comparability of different PRIIPs.
7: How would you ensure a consistent approach across both firms and products were a modelling approach to be adopted?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and a clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.Therefore, it is crucial that the properties of insurance-based investment products are taken into account in the modelling of the performance scenarios. For example, such products usually have a long term. Suitable scenarios are necessary to reflect the long term nature of insurance-based investment products. Moreover, since risks and reward as well as performance and costs of a PRIIP are strongly correlated, a throughout consistent approach and presentation of these features are needed.
In this context, comparability between the different products but only within certain product classes should be sought. Not useful scenarios would lead to additional complexity and confusion for consumers. Furthermore, the number and the usefulness of several scenarios with different time frames should be also looked at thoroughly in the consumer testing.
Finally, benefits of a PRIIP relating to biometric risks (death benefits, occupational disability income, surviving dependants’ provisions, etc.) should not be included in the performance scenarios but presented separately in a prominent manner.
8: What time frames do you think would be appropriate for the performance scenarios?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.It is necessary that the timeframe and other assumptions are set in line with the product features. For example, the term of the product should be reflected in the performance scenarios appropriately (whether it is 3 months or 30 years). Insurance-based investment products usually have a long term when compared to other investment products. This feature should be taken into account adequately.
Furthermore, the term of insurance-based investment products is usually only specified in the personalised advice and could vary significantly. Therefore, performance scenarios could be presented for several holding periods, which should be typical for the respective specificities of a certain product (e.g. the long-term nature of an insurance-based investment product). However, this could be difficult to achieve in a single document.
9: Do you think that performance scenarios should include absolute figures, monetary amounts or percentages or a combination of these?
The GDV believes that performance scenarios should include absolute figures in monetary amounts. See the answers to the following questions for more details.10: Are you aware of any practical issues that might arise with performance scenarios presented net of costs?
It is of utmost importance that the performance scenarios are consistent with the information on costs included in the cost section of the KID, see Q15 and Q16. Furthermore, the performance scenarios should be consistent with the risk/reward classes – see Q11 for details.The monetary amount paid which is shown in the performance scenarios should correspond to the performance net of costs, since the costs should be included in the performance calculation.
11: Do you have any preferences in terms of the number or range of scenarios presented? Please explain.
It is not useful and misleading for the retail investors if a similar amount of scenarios for all products were used. The correlation of risk and reward is essential: The number of scenarios should depend on the risk/reward class of a PRIIP. As a rule fewer scenarios are needed for PRIIPs with a low risk and reward. Moreover, the higher the risk/reward class of a PRIIP the wider the range between the scenarios should be.Since the reward should be integrated in the risk/reward indicator, for comparability and simplification reasons, the same pre-determined pool of scenarios should be used for different risk/reward classes, if there are no reference values. By doing so, the riskier products should have a larger number and a wider range of scenarios. If there is no reference value, an even number of scenarios is preferable since otherwise the scenario in the middle is often misinterpreted by retail investors to be the most likely one. The growth rates used, however, should not be different for each class since this would impede comparability.
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.
12: Do you have any views, positive or negative, on the different examples for presentation of a summary risk indicator? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
A single visual element of the market risk (and a narrative explanation of the credit and liquidity risks) would be most beneficial to consumers.Since risk and reward are strongly correlated a throughout consistent approach and a unifying presentation of these features are needed, see Q15 and Q16. Additionally, we consider it to be important that retail investors understand the trade-off between risk and reward, i.e. the possible reward for taking on a risk.
As regards the examples presented, it should be left up to consumer testing to find the most appropriate visualisation of the risk. Colours can be used when they do not diminish the comprehensibility of the information if the KID is printed or photocopied in black and white. However, colours should be chosen in a way that they do not mislead the customers. High risk is usually correlated with the possibility of a higher reward. Therefore, a traffic light colour scheme might be wrongly interpreted by the consumers in a way that products with a lower risk are always better. This is quite different from energy labels, where low energy consumption is always better.
In addition, the integration of risk indicators must not mislead customers into a wrong perception of overall risk. For example, the long duration of many insurance-based investment products is a desired feature for the customer and, therefore, not a liquidity risk and the classification as such would lead to a wrong impression of a risky product.
13: Do you have any views, positive or negative, on the different examples for presentation of performance scenarios? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
One visual element for the performance scenarios showing all scenarios in one graph would be the most useful presentation for investors allowing clear comparison.Since risk and reward as well as costs and performance scenarios are strongly correlated a throughout consistent approach and a unifying presentation of these features are needed – see Q14 for details.
14: Do you have any views on possible combinations of a summary risk indicator with performance scenarios?
It is important that risk/reward indicator and performance are presented in a concise and consistent way since both quantities are strongly connected.As already explained in the reply to Q11, the number of performance scenarios should depend on the risk/reward class. Therefore, the GDV favours combination 2B (single visual element for the risk/reward indicator and single visual element for all performance scenarios as suggested in our replies to Q12 and Q5). As noted in the reply to Q13, the costs should be integrated in a consistent manner. In advance to question Q20, it can be best achieved by applying the reduction in yield approach (RIY).
The following example explains the overall concept: the risk and reward of a PRIIP in this example is assumed to be 3 out of 6. The resulting performance scenarios before costs for this risk/reward class are e.g. 2%, 4%, 6% and 8%. All relevant costs are then reduced in form of the RIY (total cost ratio). For simplification reasons, we assume that RIY equals 1.5%. This results in
performance before costs: 2% 4% 6% 8%
total cost ratio: 1.5% 1.5% 1.5% 1.5%
Performance after costs: 0.5% 2.5% 4.5% 6.5%
Then, the performance scenarios in monetary terms correspond to the performance after costs, that is, 0.5%, 2.5%, 4.5% and 6.5%.
15: Do you agree with the description of the consumer´s perspective on costs expressed in the Key Questions?
First of all, capital guarantee protecting against market risk should be covered in the performance and risk section of the KID (more narrow spread between the performance scenarios). This is due to the fact that it is achieved by collective investment management, which is usually influenced by the corresponding legal provisions that enable insurance undertakings to design guarantees. The effect of capital guarantee on the risk/reward profile and performance scenarios should be treated consistently: the higher the guarantees, the lower the risk/reward class, and the more narrow the spread between the performance scenarios (e. g. a lower maximum value). This implies, however, that no fictitious, additional guarantee costs are assumed.We understand that the questions describe the perspective of the retail investor and should not be as such included in the KID. It is important that the Key Questions correspond to and do not go beyond the exact provisions of the PRIIPs Regulation.
Furthermore, while these questions focus on the main characteristics of costs, the questions themselves use rather informal and negative wordings and are only concentrated on the costs of the PRIIP and not on its performance. First, there is a strong correlation between costs and performance of the PRIIP. Therefore, an isolated presentation of costs is misleading for consumers and inappropriate. A consistent, integrated and properly balanced approach is necessary. Second, the structure and presentation of the KID should not lead to an overly negatively sounding document. The issue of a balanced document should be looked at thoroughly in the consumer testing as well.
As regards the questions related to the comparability of costs, the regulator should be wary of not creating a methodology which would impact the product design (pressure to adapt the cost structure of a product to be able to apply the EU-methodology).
In addition, the information on costs should be tailored to the features of the products appropriately so that the cost indicators are useful for the retail investors and allow them to compare within a certain group of products.
16: What are the main challenges you see in achieving a level-playing field in cost disclosures, and how would you address them?
There is a classification mistake that costs of managing the insurance cover are wrongly listed as investment-related costs.We believe that the correct definition of the cost term and the balanced presentation of costs and performance are crucial. Please refer to the crucial issues described in Q16 on features of insurance-based investment products, particularly in relation to different benefits and costs.
18: Do you have any views on how implicit costs, for instance costs embedded within the price of a structured product, might be best estimated or calculated?
First of all, it is of utmost importance that the features of insurance-based investment products are taken into account appropriately: unlike other PRIIPs these products provides for additional benefits and protection in addition to offering an investment opportunity, such as• guarantee of a given investment performance or a given level of benefits (capital guarantee protecting against market risk);
• protection against biometric risks (death benefits, occupational disability income, surviving dependants provisions etc.)
These features should be presented in the KID in a prominent manner, ensuring that the total picture of a PRIIP is balanced. The GDV is worried that the presentation of insurance related benefits might fall short in the KID.
We see big challenges not only on achieving a level playing field in cost disclosure but also in the correct definition of the cost term for insurance-based investment products. Therefore, a correct definition of the cost term for an insurance-based investment product is essential. First, it should be sharply and clearly distinguished between costs and premiums. Premiums – that is payments that directly finance the benefits of a PRIIP – should be never considered as costs.
The following specific features of insurance-based investment products are crucial and should be taken into account:
- Premiums for protection against biometric risks are not costs, since the retail investor receives insurance benefits for these payments.
- Capital guarantee protecting against market risk of the insurance-based investment products should be covered in the performance and risk section of the KID (more narrow spread between the performance scenarios), see our reply to Q15. In general, performance scenarios should be consistent with the information on costs included in the cost section of the KID: the higher the guarantees, the lower the risk class, and the more narrow the spread between the performance scenarios (e. g. a lower maximum value). This implies, however, that no fictitious, additional guarantee costs are assumed.
- Early redemption fees should not be treated as costs. These deductions are justified in accordance with actuarial principles and serve to protect the community of policyholders (e.g. against anti-selection). Then again, this issue should be better addressed in the section of KID on surrender value. In our view, it is important to inform the retail investors about the development of the surrender value of their PRIIP. Due to the limitation of the length of the document at least the ratio “surrender value / sum of contributions” should be presented for, say, 1, 5 10, 20 and 30 years.
- There are no surcharges according to the methods of regular payment chosen in the premium calculation. This would contradict the Consumer Credit Directive (2008/48/EC).
- Look through costs are sometimes not known to the PRIIP manufacturer, e.g. if the underlying fund a PRIIP invests in is not obliged to disclose certain costs.
Another major challenge is that the information on individual costs is difficult to compare for retail investors and, therefore, does not enhance transparency. Since the insurance-based investment products have terms that sometimes last over decades, only annualised costs are comparable for different PRIIPs in a consistent, robust and stable way. This becomes particularly obvious if products that have a term of 3 months are compared with products that have duration of 30 years. Thus, it is important to apply a suitable, transparent, comprehensive and comparable cost indicator. In our view, reduction in yield approach is the most appropriate method for the cost representation since it fulfils the above mentioned requirements.
Finally, there is a strong correlation between costs and performance of the PRIIP. Therefore, an integrated representation of costs is necessary for the retail investors to understand the link between the two.
19: Do you agree with the costs and charges to be disclosed to investors as listed in table 12? If not please state your reasons, including describing any other cost or charges that should be included and the method of calculation.
We would like to point out that look through costs are sometimes not known to the PRIIP manufacturer, e.g. if the underlying fund a PRIIP invests in is not obliged to disclose certain costs (e.g. transaction costs in UCITS).20: Do you agree that a RIY or similar calculation method might be used for preparing ‘total aggregate cost’ figures?
The RIY is an appropriate way to disclose the aggregate costs figures (see Q14). The German Insurance Association recommends on a non-binding basis RIY as information to be provided about the price and performance of a product. Since the beginning of 2015, the RIY also imposed by national legislation (Gesetz zur Absicherung stabiler und fairer Leistungen für Lebensversicherte (Lebensversicherungsreformgesetz - LVRG), BGBl. 2014 I page 1330) and is regarded as a high standard of suitable, transparent, comprehensive and comparable cost disclosure.The correct implementation of the approach, however, crucially depends on the appropriate definition of costs as described in Q16.
Furthermore, the costs are closely related to the performance of the PRIIP. Therefore, these quantities should not be presented in an isolated way (see Q15). It is important that the assumptions and the modelling methods are consistent so that the effect is not taken into account twice.
Again, it is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.
21: Are you aware of any other calculation methodologies for costs that should be considered by the ESAs?
No, reduction in yield is the most appropriate methodology.22: Do you agree that implicit or explicit growth rates should be assumed for the purpose of estimating ‘total aggregate costs’? How might these be set, and should these assumptions be adjusted so as to be consistent with information included on the performance scenarios?
There is a strong correlation between costs and performance of the PRIIP. Therefore, an integrated representation is necessary for the retail investors to understand the link between the two. Please also see our replies to previous questions, especially Q14 and Q20.24: Do you have any views on possible assumptions that should be made, and how these might be calibrated or set?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturersAs pointed out in the table on pages 19 and 20, the information contained in KID should be comparable for different PRIIPs and its representation should be consistent, robust and stable. Since the insurance-based investment products have terms that sometimes last over decades, only annualised costs could achieve the above mentioned qualities of a cost representation. This becomes particularly obvious if products that have a term of 3 months are compared with products that have duration of 30 years. Therefore, the representation of annualised costs together with a reduction in yield approach is the most appropriate method for the cost representation, which is also very useful and understandable for the consumers.
25: What do you think are the key challenges in standardising the format of cost information across different PRIIPs, e.g. funds, derivatives, life insurance contracts?
Costs and performance scenarios are strongly correlated. Therefore, a throughout consistent approach and a unifying presentation of these features are needed. Also the performance scenarios should be appropriate to the risk/reward of a product. See also our reply to Q14.Customers rightly expect the following equation in annualised percentage terms to be true:
Performance before costs – RIY = Performance after costs.
This should be taken into account and made apparent when presenting costs. Here, all costs of a PRIIP are included in the single RIY figure.
The correct implementation of the approach, however, crucially depends on the appropriate definition of costs as described in Q16. Another major challenge is that the information on individual costs is difficult to compare for retail investors and, therefore, does not enhance transparency. Thus, it is important to apply a suitable, transparent, comprehensive and comparable cost indicator. In our view, the reduction in yield approach is the most appropriate method for the cost representation since it fulfils the above mentioned requirements.
26: Do you have a marked preference or any objection for any of the presentational examples? If so, why? Please provide any alternative examples which you believe could be useful.
The question arises whether the extensive information on all individual costs will enable retail investors to compare different costs. A suitable cost indicator that includes all costs, such as reduction in yield, would provide a more suitable, transparent, comprehensive and comparable information for retail investors.Breaking down costs into entry and ongoing costs makes it next to impossible for customers to judge the impact of costs. While it is technically possible in our experience it is not transparent, neither comprehensible nor comparable for customers.
27: In terms of a possible breakdown of costs, are you aware of cost structures for which a split between entry or exit costs, ongoing costs, and costs only paid in specific situations or under specific conditions, would not work?
In our view, it is not plausible to integrate the market, credit and liquidity risks into a summary indicator. As mentioned in our reply to Q3, not all risks are relevant for each type of PRIIPs.Particularly for insurance-based investment products, only market risk should be captured by a quantitative risk/reward indicator complemented with a narrative explanation. Since credit and liquidity risks have little relevance for insurance-based investment products, qualitative information regarding these risks could be added within the narrative explanation of the risks if they are materially relevant for a product.
Here, we would like to stress again that the explicit long-term nature of many insurance-based investment products is often a valuable feature for the customer and should not be treated as a liquidity risk, which could wrongly lead to the presentation of the product as an overall risky instrument in the summary risk/reward indicator (see also reply to Q12). More to the contrary, the long-term nature should promote and encourage saving activity of consumers. In any case, early surrender should be discussed in another section of the KID (How long should I hold it and can I take money out early?).
28: How do you think contingent costs should be addressed when showing total aggregated costs?
As pointed out in the table on pages 19 and 20, the information contained in KID should be comparable for different PRIIPs and its representation should be consistent, robust and stable. Since the insurance-based investment products have terms that sometimes last over decades, only annualised costs could achieve the above mentioned qualities of a cost representation. This becomes particularly obvious if products that have a term of 3 months are compared with products that have duration of 30 years.Therefore, the representation of annualised costs together with a reduction in yield approach is the most appropriate method for the cost representation, which is also very useful and understandable for the consumers.
29: How do you think should cumulative costs be shown?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturersMoreover, we would like to refer to our reply to question 16. In particular, the following specific features of insurance-based investment products are crucial and should be taken into account:
- Early redemption fees should not be treated as costs. These deductions are justified in accordance with actuarial principles and serve to protect the community of policyholders (e.g. against anti-selection). Then again, this issue should be better addressed in the section of KID on surrender value. In our view, it is important to inform the retail investors about the development of the surrender value of their PRIIP. Due to the limitation of the length of the document at least the ratio “surrender value / sum of contributions” should be presented for, say, 1, 5 10, 20 and 30 years.
- Look through costs are sometimes not known to the PRIIP manufacturer, e.g. if the underlying fund a PRIIP invests in is not obliged to disclose certain costs.
30: Do you have any views on the identity information that should be included?
Any document should contain name and postal address. A reference to a website should only be required, where it exists. We think it would be possible to allow for room for the inclusion of voluntary additional information without it being confusing to retail investors.31: Do you consider that the criteria set out in recital 18 are sufficiently clear, or would you see some merit in ESAs clarifying them further?
Although the criteria set out in recital 18 are unclear, there is no empowerment for the ESAs in the PRIIPs Regulation to specify the details of these criteria. If applied too broadly, the warning may lose its differentiating impact.32: Do you agree that principles on how a PRIIP might be assigned a ‘type’ will be needed, and do you have views on how these might be set?
A classification according to the legal form of the contract or instrument seems to be appropriate.36: Do you have views on the information PRIIPs manufacturers should provide on consumer types?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, uniform and clearly specified approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.It is, furthermore, important that retail investors receive products that suit their individual needs: especially the risk and reward of a PRIIP should correspond to the risk and reward preference of a retail investor. For any further assessment of retail investor’s needs, a personal advice is indispensable. This is, however, out of scope of the PRIIPs Regulation and is subject to a different legislation, e.g. IMD2.
Therefore, the provisions should be neither too narrow nor too specific so that the types could encompass the maximum useful number of retail investors.
37: What is the key information that needs to be given to the retail investor on insurance benefits, and how should this be presented?
Insurance benefits are an essential part of an insurance-based investment product. Unlike other PRIIPs these products significantly increase the level of protection against risks of retail investors providing additional benefits and protection in addition to offering an investment opportunity, such as• guarantee of a given investment performance or a given level of benefits (capital guarantee protecting against market risk);
• protection against biometric risks (death benefits, occupational disability income, surviving dependants provisions etc.).
These features should be presented in a prominent manner in the KID, ensuring that the total picture of a PRIIP is balanced. The GDV is worried that the presentation of insurance related benefits might fall short in the KID.
We would like to point out that difficulties might arise for PRIIPs that offer coverage against biometric risk. The features of these insurance benefits strongly depend on the different individual factors such as, for example, age and type of occupational activity. Therefore, a solution should be sought for an adequate presentation of biometric features of PRIIPs in the product KID.
38: Are you aware of PRIIPs where the term may not be readily described, or where there are other issues?
Commonly, insurance-based investment products have a fixed or lifelong term (the exact term itself, however, differs from investor to investor).40: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
In our view, it is important to inform the retail investors about the development of the surrender value of their PRIIP. The surrender values could be presented for, say, 1, 5 10, 20 and 30 years. Due to the limitation of the length of the document at least the ratio “surrender value / sum of contributions” could be presented.42: Do you agree that this section should link to a webpage of the manufacturer?
On the webpage consumers can also find marketing information, since it is a part of the internet appearance of the manufacturer. Therefore, the provisions should not conflict with the permission to display marketing materials on their website.43: Do you agree with the assessment of when PRIIPs might be concerned by article 6(3)?
Apart from the hybrid and unit-linked insurance products, also any other product with options could be concerned by article 6(3). When discussing this issue not only existing products have to be taken into account but also possible future developments.44: In your market, taking into account the list of criteria in the above section, what products would be concerned by article 6(2a)? What market share do these represent?
Unit-linked insurance products and hybrid products would be concerned by article 6(2a). However, we do not have an overview of the entire market. Therefore, we cannot estimate the market share of these products.45: Please provide sufficient information about these products to illustrate why they would be concerned?
Some products offer a wide range of funds to choose from, sometimes in excess of 100.Other products might offer the retail investor with a yearly choice between index participation and a fixed interest (for one year).
46: Do you have views on how you think the KID should be adapted for article 6(3) products, taking into account the options outlined by the ESAs?
It is of utmost importance that a level playing field is ensured between different types of PRIIPs. If in this case the KID would provide only generic high-level information, it would lead to consumers receiving considerably different information in terms of its quality.A solution might be that the investment options are divided into appropriate classes of comparable products. Then, from each class a representative KID should be chosen.
It might be even preferable for the retail investors to receive a personalised information document based on a provisional selection of possible investment options once the retail investor has made these. This would still constitute pre-contractual information.
We would like to point out that comparable difficulties might arise if a PRIIP offers coverage against biometric risk. The features of these insurance benefits strongly depend on the different individual factors such as, for example, age and type of occupational activity. Therefore, a solution should be sought for an adequate presentation of biometric features of PRIIPs in the KID.
48: Are you aware of further challenges that should be taken into account?
If the underlying of a PRIIP is not a PRIIP itself, then the manufacturers might not be able to provide all the information for the underlying which is required by the PRIIPs Regulation since there is no full “look-through”. This applies for example to UCITS funds, which for example are not obliged to disclose transaction costs. In this case, it should be ensured that the manufacturers are only obliged to disclose the information they are legally entitled to receive from the investment management companies.49: Do you agree with the measures outlined for periodic review, revision and republication of the KID where ‘material’ changes are found?
The KID should be revised regularly for new business of the manufacturer. Since KID is meant to be a pre-contractual information, no updates for in-force business are necessary.50: Where a PRIIP is being sold or traded on a secondary market, do you foresee particular challenges in keeping the KID up-to-date?
This should be irrelevant for the insurance-based investment products.51: Where a PRIIP is offering a wide range of investment options, do you foresee any particular challenges in keeping the KID up-to-date?
It should be taken into account that KID cannot be revised more often than the information for underlying investments.52: Are there circumstances where an active communication model should be provided?
No, the KID is pre-contractual. Therefore, an active communication model about a new/changed KID is not feasible. Moreover, other regulations already ensure the provision of on-going information for retail investors.53: Do you agree that Recital 83 of the MiFID II might be used as a model for technical standards on the timing of the delivery of the KID?
While the KID is a pre-contractual information which needs to be provided before conclusion of the contract, no additional rule for a specific timing is necessary.55: Do you think that the ESAs should aim to develop one or more overall templates for the KID?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.In our view, it is, therefore, necessary that different templates are used for different types of KID. A classification according to the legal form of the contract or instrument seems to be appropriate. It is important that the KID only includes information which is relevant for the specific product. The information should be tailored to the features of insurance-based products, e.g. whether a payment is due now or in 30 years significantly impacts the costs and benefits.
56: Do you think the KID should be adjusted to reflect the impact of regular payment options (on costs, performance, risk) where these are offered? If so, how?
It is important that an appropriate solution for the different objectives the KID is aiming to achieve is found: on the one hand, in order to ensure comparability of PRIIPs across EU and legal certainty, a uniform and clearly specified modelling approach is necessary for different PRIIPs. On the other hand, due to the wide range of products under the scope of the Regulation, such an approach would be difficult to implement or could lead to unsuitable information requirements for retail investors and/or have negative consequences for the manufacturers.For insurance-based investment products, both types, i.e. single and regular payment are equally important. Therefore, there should be a possibility to tailor the KID to both features in an appropriate manner. A one size fits all approach should be avoided since it will lead to consumers receiving misleading information.