The regular instruction is to a UK broker for a number of share purchases to be held in a UK ISA. The purchases comprise closed-end investment trusts and one EFT.
My broker told me my new investments were PRIIPS and so therefore I had to read a Key Information Document (KID), could I confirm that I had done so.
I was - and still am not - aware any of legal obligation on me to read KID, so I confirmed that I had not read any KIDs and intended not to do so.
The broker rejected my instruction.
I have been challenging my broker to cite the precise regulation that obliges me - a UK retail investor - to read a KID. So far, the broker hasn’t cited the precise regulation, so it looks like this will become a formal complaint to expose the truth and strip hubris right back to the literal legal requirements.
Meanwhile, partly out of academic curiosity - but partly also to shut the broker up, I regret to admit - I read the KIDs.
I quickly discovered that the KID is a beast of MIFID, which is in turn a beast of the European Securities & Market Authority.
When I screen for investment trusts, as a minimum, I tend to read their current annual reports, review short-, medium- and long-term price movements, and compare its overall investment strategy for compatibility with my own appetite for risk and capacity for loss over a minimum window of 5 years. There’s no limit to the questions I can ask; there is a limit to the answers I can fetch; the best I can do is limit the range of likely risks and minimise the scope of any assumptions I need to use to cover gaps in knowledge. That said, one assumption I always end up making is the directors’ compliance with Companies Acts 1985 and 2006.
By contrast, I found the KIDs to be both pointless and misleading. They listed tautologies, vacuities, contingencies without reference to actual probability and baseless quantitative speculation. Boilerplate statements of the type "this might happen, that might happen" is lazy scaremongering worthy of Project Fear. None of the KIDs enumerated the risks they pretend to highlight, e.g. "the Fund may borrow to purchase assets for the Fund" or "The Manager may use derivatives...": without numbers, how can these statements possibly pass the "so what?" test? This sort of idiocy is akin to a packet of peanuts carrying the words, "Allergy warning: may contain nuts."
Most odious of all in the KIDs are the "performance scenarios", which appear to be calculations based on past performance, effectively contradicting over 20 (30?) years of advice from past regulators that "past performance is no guide to future performance."
In one case, the performance scenario forecasts losses in all scenarios, except for the “favourable” scenario. This did not stack up with the price history. Whether overly pessimistic or overly optimistic, the scenarios’ numbers appeared calculated out of thin air, presented without external comparable and, apparently, us ignorant plebs of retail investors are supposed to understand these pyschobabble numbers natively.
In this respect, one journalist has described KIDs as a "triumph of pseudoscience over common sense."
Yet, all of the companies within the instruction to my broker had demonstrably complied with ESMA’s requirements.
Accordingly, contrary to ESMA’s stated intentions, ESMA's requirements return KIDs that are fundamentally misleading by design. I cannot see how KIDs could be useful to any investor, retail or otherwise.
Therefore, I consider KIDs to be officially-sanctioned fake news, ie. fatuous conjecture buried in a sea of irrelevant and contextless truths and half-truths.
It seems that the companies are as much victims of ESMA’s “sledgehammer-to-miss-a-nut” style of pseudoscientific stupidity as are retail investors. Worse, this means that brokers and other intermediaries are in an absolute no-win situation, irrespective of how their national regulator negates the excesses of ESMA’s pseudoscientific stupidity.
In my case, my broker rejected my instruction because I had not read the officially-sanctioned fake news. Apparently, I was insufficiently misadvised prior to purchase. This cuts right into the client-broker relationship in a fundamentally damaging way that severely erodes the trust a client can afford to have in their own broker. Is this the evil nanny state nannying, or it ESMA simply playing its role in the endless feudal game of moving retail suckers into a place where they can be fleeced without limitation, with the blessing of the state?
For all the value that KID could have contained, to me, the KID is no better a guide to the investment decision than to have read this morning’s horoscope for the company’s investment managers.
Questions for this thread:
- Whereabouts in either EU law/regulation or UK law/regulation is the obligation on retail investors to read a KID prior to investment?
- Does your broker insist that you have read a KID prior to investment?
- How do you propose to use a KID, if at all?
- If you have complained to your broker, what was your broker’s response?
(Sorry - links to evidence were blocked, so I cannot refer you to the underlying evidence of regulation)