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ANASF - Associazione nazionale promotori finanziari

Vania Franceschelli
Beyond individual Key Questions – which may be too detailed from a real consumer’s perspective – we agree with the idea that, for consumers, risk has two dimensions: the possibility of capital loss, on the one hand, and the uncertainty of the returns, on the other. Concerning the Key Questions, we think that the definition of the holding period / term of the investment should play a pivotal role.
As explained in our answer to Q5, we believe that, at first, investors should be given an aggregate understanding of the concept of risk. As a second step, investors should be provided with an explanation of the different types of risk. In both cases, it is important to remind the assistance provided by distributors (in Italy, promotori finanziari acting as tied agents pursuant to MiFID provisions) and, as a general form of investor protection, the role of other relevant Union law provisions (this is especially the case of MiFID requirements concerning suitability).
Finally, we consider that the description of the consumer’s perspective should be more focused on the importance of his/her time horizon.
Yes, we agree that market, credit and liquidity risk are the main risks for PRIIPs.
With regard to market risk, we consider that specific attention should be paid to PRIIPs whose value is dependent on the value of another PRIIP or that invest in other PRIIPs: for instance, this is the case of funds-of-funds or swap-based funds. For these products the need for investor protection should be carefully considered, especially for look-through costs relating to those of the underlying.
We believe that relevant Authorities should foster standardization by identifying a specific quantitative measure for market risk: particularly, we suggest using historical volatility, for instance in the form of annualised standardised deviation (ASD). The appropriate time-frame for the calculation of the standard deviation should be defined considering the time horizon of the consumer type at whom the PRIIP is aimed at. Conversely, we do not consider Value-at-Risk, Expected Loss for a given Value-at-Risk or Expected Shortfall VaR as appropriate measures, because they are typically calculated over a short time-frame (accordingly, they could be used only as ancillary measures for market risk).
We agree with all the qualitative measures of market risk.
With regard to credit risk, we basically agree with all the proposed measures, although we emphasise the need to specify that credit rating is a temporary measure: on the one hand, investors should be appropriately informed both before and during the life of the investment; on the other hand, credit rating changes should be carefully assessed on the occasion of every KID review.
Finally, we agree with all the proposed measures of liquidity risk.
As explained in Q20 and Q22, we would suggest using the TER, supplemented with a narrative explanation of those conditions that trigger performance fees.
As a preliminary remark, we agree that customers have difficulty in understanding probabilities: customers are prone to behavioural biases, as percentage figures relating to probability may create unfair expectations. Accordingly, we believe that performance scenarios may be based on probability modelling but no percentage figures for probabilities should be included in the KID representation.
Specifically, we think that three scenarios should be presented (a negative situation, a benchmarking outcome and a positive situation). Selected scenarios should be based on their likelihood under specific guidelines by relevant Authorities to reflect representative returns but, as said, no percentages relating to their likelihood should be represented in the KID.
As mentioned in the previous answer, we believe that the three relevant scenarios (a negative situation, a benchmarking outcome and a positive situation) should be selected under specific guidelines by relevant Authorities.
We think that the solution envisaged at pages 31-32 of the Discussion Paper may represent a useful starting point: scenarios could be selected on the basis of their probability of occurrence (for instance, a positive, neutral and negative scenario reflecting the expected return within the distribution).
Considering that different PRIIPs have different maturity and liquidity profiles, we do not think that the timeframe could be one fixed period for all PRIIPs. Conversely, we suggest an approach based on several holding periods for each PRIIP (for example, by showing a euro value of the investment on certain intervals over the years). In this presentation, specific prominence should be given to the recommended holding period. Other time frames may be defined considering investor needs: the second time frame might show the impact of short term holding (with a label specifying that this holding period reflects the consequences of early disinvestment), while the third time frame might show the impact of long term holding.
We think that performance scenarios should include a combination of monetary amounts and percentages. We also consider that data should be combined with a graph (see our answer to Q11).
We believe that, as mentioned in the Discussion Paper, performance scenarios presented net of costs would not enable the investor to distinguish between the intrinsic performance of the PRIIP and its costs, especially if we consider that there may be variable costs based on the performance. Accordingly, we consider that performance scenarios should be expressed in gross terms, with a prominent warning in the KID that, as returns are in gross terms, the investor needs to refer also to the cost section (please see our answer to Q26).
We think that five scenarios may not be consistent with the purpose of the KID, as they would complicate the presentation. As mentioned in Q6, we believe that three scenarios in the form of a volatility cone (e.g., Ibbotson Cone) should be presented: a negative situation, a benchmarking-expected outcome and a positive situation. We think that this solution would be engaging for retail investors and would help them better comprehend and compare different performance scenarios. As mentioned in Q6, to reflect representative returns these scenarios might be selected on their probability of occurrence, under specific guidelines by relevant Authorities.
As a general comment, we emphasise the importance of visual elements for the abstract presentation of the summary risk indicator. As explained in our answer to Q5, we consider that the example described in the Italian research (see page 39 of the Discussion Paper) is the best solution, as it provides for an overall prominent risk indicator, followed by specific market, credit and liquidity risk indicators. We suggest using a scale from 1 to 5 on the basis of volatility records; however it is also necessary to specify that these values correspond to general risk categories: i.e., bands that do not exactly measure the investor’s risk profile. A three-fold distinction is thus needed, so as to consider: (1) risk classes within the range from 1 to 5, which should be regularly updated and are quite easy to use; (2) risk measure, as it pertains to the PRIIP itself (i.e., considering product features and target markets); (3) customer’s risk profile, measured as a result of the suitability assessment. Accordingly, risk classes (1) and risk measure pertaining to the PRIIP (2) should be understood in their relation to each customer’s risk profile (3).
We think that the examples from 1 to 4 are nor engaging neither effective. We appreciate the V-shape graph used by the Association of British Insurers (page 43 of the Discussion Paper): this graph may be supplemented showing percentage return values and nominal euro values on certain intervals over the years, in order to consider the impact of different holding periods (see our answer to Q8). We also have positive views on the Dutch example (page 43 of the Discussion Paper), as it provides for a “plausible best case”, an expected situation and a “plausible worst case”.
Considering our previous answers (Q12 and Q13), we would favour Option 3B: a multiple visual risk indicator (giving prominence to the overall risk indicator) and a single visual performance scenario (specifically, a graph with three performance scenarios, as in the V-shape graph used by the Association of British Insurers, cf. page 43 of the Discussion Paper).
We believe that the Key Questions complicate the description of the consumer’s perspective. Therefore, we suggest a more straightforward approach. First of all, we should consider: i) the overall cost amount; ii) direct and indirect costs; iii) fixed and variable costs. As a second step, it is necessary to ensure relevance to a) the circumstances that may trigger additional costs and b) the availability and frequency of updates on costs. Concerning the estimation of the overall costs, we prefer the indication of a cost range (minimum – maximum amount) as a prerequisite to future updates on costs.
With regard to investment advice, a specific initial warning should be included in the KID, indicating that advice costs may be paid separately by the customer to the distributor.
Yes, we do. Specifically, we would prefer the first approach to the disclosure of the costs (page 56 of the Discussion Paper, first paragraph), to inform retail investors of the general amount of margin/fees incorporated in the purchase price of the product.
NA
We think that the main challenge should be defined in more general terms, as it pertains to the notions of risk, return, costs (and their disclosure). Accordingly, a real level-playing field can be achieved only by harmonising all these key concepts with regard to financial instruments and insurance products, in order to enable investors to better understand and compare key features, risks, rewards and costs of different PRIIPs.
NA
No, we don’t. We point out this problem: a RIY is based on hypotheses, i.e. on casual features (for instance, pertaining to the amount of performance fees). Conversely, we would suggest using the TER (Total Expense Ratio), supplemented with a narrative explanation of those costs that are not included as they are not calculated on an ongoing basis (entry and exit costs, performance fees ...).
NA
As explained in Q20, we would suggest using the TER, supplemented with a narrative explanation of those costs that are not calculated on an ongoing basis. This narrative should mention that, under certain specific conditions relating to positive outcomes, performance fees will apply.
NA
As explained in Q16, it is important to achieve a level playing field with regard to the notions of risk, return and costs (and their disclosure).
We think that Options 1 and 2 are incomplete, Options 7 and 10 are not engaging and Option 9 is too complicated (as stated in our answers to Q6, probabilities in percentage may give investors wrong impressions and expectations).
We would favour Options 4, 5, 8 and, above all, 6.
Option 4 provides for a clear disclosure of the different types of costs (upfront, on-going and exit costs) and clearly indicates the fair value (considered as the real amount of invested capital). However, the downside of this option is the absence of different performance scenarios.
Option 5 has these advantages: i) it provides for an illustrative investment of 1,000, which is particularly engaging; ii) upfront, ongoing and exit costs are clearly shown.
Option 8 has all the advantages of Option 5. Option 8 also shows different scenarios and holding periods, that should be consistent with the assumptions made in the performance scenario section. However, we acknowledge that Option 8 may be too dense in terms of information.
As mentioned, Option 6 is the best solution as:
• its level of complexity is relatively low;
• the cumulative costs are shown over a periodic time basis in both percentage and monetary terms. Accordingly, time references in the Tables may be related to the time frame used in the performance scenario section;
• information on performance scenarios may be supplemented by adding two other columns relating to “What you might get back at [given percentage value]”. That is, different columns could be used for different performance scenarios (a negative situation, a benchmarking outcome and a positive situation, as explained in Q6).
NA
As a general comment, we agree that, from the consumer’s perspective, risk is not primarily conceived in its multidimensional concept but considering loss and uncertainty. At the same time, we disagree with the proposal to give prominence to a specific type of risk (for instance, market risk). Indeed, we believe that, at first, investors should be given an aggregate understanding of the concept of risk: in this case, it is important to mention, from a consumer’s perspective, the assistance activity that is possible thanks to the existence of professionals such as consultants and distributors (in Italy, promotori finanziari acting as tied agents pursuant to MiFID provisions). As a second step, investors should be provided with an explanation of the different types of risk. Accordingly, we emphasise the need of a visual presentation showing an overall risk indicator with more prominence, followed by specific market, credit and liquidity risk indicators (as represented in the example described in the Italian research, see page 39 of the Discussion Paper). Considering the requirement to contain the key information in three A4 pages, it is not necessary to include a narrative explanation, as the three risks would be represented by specific indicators.
As we have explained in our answer to Q26, cumulative costs may be shown as in Option 6; however, it is necessary to specify that the “total cost” is the sum resulting from costs paid over a long time horizon (10 years in the example).
Concerning portfolio management techniques, for the sake of better consumer protection and transparency we consider that earnings, generated as a result of these techniques, that are not paid into the portfolio should be considered as a cost, because they reduce the potential return for the investor.
With regard to performance fees, we consider that these costs should be disclosed to customers by explaining in detail their triggering conditions and calculation methodology.
Furthermore, we think that early redemption costs should be shown in the costs section of the KID, as this section should take into account the overall costs for the customer.
Finally, with respect to look-through costs, we have already emphasised (Q3) the need to carefully consider investor protection in the case of a PRIIP that invests in another PRIIP: accordingly, we suggest considering this issue within a further specific consultation. As a preliminary remark, we believe that it is necessary to include reference to the parameters of the underlying PRIIP or, if this is not completely possible because of product complexity, inform customers, at least every twelve months, on an ex post basis.
For the sake of investor protection, we agree with the requirement to provide a link to a specific “contacts and further information” page of the website of the PRIIP manufacturer. Furthermore, we consider that a telephone number and a postal address should be published in the KID, not to exclude those investors that do not use the internet.
The Regulation prescribes that, where applicable, the KID shall contain a comprehension alert reading: “You are about to purchase a product that is not simple and may be difficult to understand”. Although we recognize that this provision must be observed as it is established by Regulation, we think that such a sentence may actually confuse some investors. Accordingly, it should be complemented with another sentence. The whole alert would read: “You are about to purchase a product that is not simple and may be difficult to understand, because this product is classified as a complex product as it [specification of the relevant criterion]”.
As a general comment, we agree with the proposed criteria and we consider that the ESAs should work to identify other types of investment’s pay-off which take advantage of behavioural biases.
Yes, we do. Specifically, we consider that the classification should include a combination of legal form and basic product features. A possible (non-exhaustive) classification could be drawn on this example:
- “structured bond + term” (short/medium/long term);
- “derivate + basic features” (future, option, swap ...);
- “UCITS + basic features” (fund/Sicav; open-end/closed-end funds; money market/fixed-income/equity funds ...);
- “life insurance contract + basic features” (e.g., unit-linked, index-linked ...).
Yes, we are. As we have exemplified in Q32, the classification should be based also on basic product features.
Yes, we do. As explained in Q36, we suggest including information on the investment purpose, determined considering the investor’s needs and objectives (for instance, solely accumulation or some income distribution, capital protection or capital return ...).
NA
As mentioned in the Discussion Paper, we agree that the generic description of the consumer type at whom the PRIIP is aimed at should not be limited to his/her ability to bear investment loss and his/her horizon. Indeed, we emphasise the need to include information on the investment purpose, determined considering the investor’s needs and objectives (for example, solely accumulation or some income distribution, capital protection or capital return ...). The generic description should also include a reference to the experience or knowledge expected of the customer.
The information should summarise the key terms and conditions of the insurance cover, its benefits (specifically, their amount and frequency) and the conditions applying to the beneficiary (particularly, if the policy may have an irrevocable beneficiary).
NA
We would suggest considering national legislations with regard to consumer rights, in order to harmonise relevant provisions among different sectors (financial services, insurance activities ...).
The KID should include a mention of the withdrawal rights and the initial suspension of the enforceability of contracts that national laws may provide for the sake of investor protection, specifying the period accorded to the investor to notify his/her withdrawal from the contract. After all, the KID Regulation requires to specify, where applicable, whether there is a cooling off period or cancellation period for the PRIIP.
For the sake of investor protection, we believe that contact details for the handling of complaints should not be limited to the manufacturer’s website but should also include a telephone number and postal address, not to exclude those investors that do not use the internet.
With regard to distributors, we consider that the problem outlined in the Discussion Paper (i.e., the manufacturer may not be aware of the identity of the distributor) might be overcome by applying to all PRIIPs the provisions on complaints handling of the ESMA technical advice relating to the delegated acts required by MiFID II: in this way, a real level playing field among all PRIIPs (specifically, financial and insurance products) would be ensured.
Yes, we do.
Yes, we do.
As mentioned by the Joint Committee, we also expect that products concerned by this provision may be index and unit-linked life insurance contracts (in Italy, these products are known as insurance products included in classes number III and V).
They would be concerned as they have at least two investment or payment options. For instance, with regard to the pay-out, the investor can choose between lump sum or regular pay-out (annuity).
Yes, we do. As mentioned in Q45, this could be done by specifying the calculation methodology of the regular pay-out (annuity), if customers choose this option as an alternative to lump sum pay-out.
NA
Yes, we do. Specifically, tax treatment should also be considered, in order to ensure a real level playing field among different sectors.
Yes, we do.
As explained in Q52, we suggest applying MiFID requirements concerning product governance to all PRIIPs: this solution would ensure appropriate information flows between the manufacturers and the distributors, also in the case of PRIIPs being sold or traded on a secondary market.
Also in this case, we believe that the application of MiFID requirements concerning product governance may provide an effective solution.
We believe that the “active” approach should generally be preferred. With regard to its possible downsides:
- it is true that the active approach would be more costly for the PRIIP manufacturer. However, these costs, stemming from information activities which would be established for the sake of investor protection, will be disclosed in the overall cost amount. To this end, specific description and guidance on these costs (especially regarding their function) may also be provided by means of further pre-contractual information;
- it is true that the manufacturer may not know, ex-ante, the identity of the end-investors. To overcome this problem, we suggest applying to all PRIIPs those MiFID requirements concerning product governance: this solution would ensure a level playing field between products and appropriate information flows between the manufacturer and the distributors, in order to ensure that compliance with relevant requirements is adequately shared among manufacturers and distributors.
Yes, we do. However, we believe that this requirement should be proportionate to pre-contractual bona fide principles, in order to avoid excessive burdens for distributors.
It is also important to consider that, with regard to consumer protection, national legislations (for example, the Italian legislation) already provide for a cooling off period before customers are bound to the agreement.
NA
We would favour this solution: as a whole, the template should be standardised. There could be a residual “customisation area” where the manufacturer can describe those specific features of the product which are not already included in the other sections of the KID.
Yes, we do. As explained in Q24, for investment products with regular contribution we would suggest considering this issue at a later time, in the context of a specific consultation. Performance scenarios may be presented by using a graph. For instance, they may be presented as in the graph of the Dutch financial leaflet at page 43 of the Discussion Paper, with the gray area showing the cumulative investments (regular investments).
NA
As a general comment, we have positive views on the introduction of a single Key Information Document for all PRIIPs, as this would effectively contribute to the creation of a fair level playing field across different segments of the financial sector.
Another relevant aspect is the enhancement of information transparency, thereby increasing investor protection.
With regard to assumptions on costs, we consider that: - costs can be calculated on an ex-post basis (for example, at least once a year) and disclosed in the KID. However, a prominent warning is needed, in order to specify that ex post-figures may not reflect what might happen in the future; - we agree with the proposal of showing costs over multiple time horizons, reflecting the needs and objectives of different consumer types; - concerning the use of rates of return for the costs section, please refer to our answer to Q22; - reference to an assumed amount invested (for example, € 1,000) is particularly useful and should be applied in the costs section (see our answer to Q26). At the same time, we acknowledge that reference to a standardized amount may not be appropriate for investment products with regular contribution: we would suggest considering this issue at a later time, in the context of a specific consultation. Concerning rebates that may be returned to the customer at the distributor’s discretion, we believe that this issue is too complicated and should not be mentioned in the KID because, for its conciseness, it does not appear to be a suitable document to this purpose.
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