Investors aren’t given the fund information they need

Posted by TEBI on March 22, 2022

Investors aren’t given the fund information they need



Welcome to the second in a series of articles by SUNIL CHADDA on unit-holder inequality in funds. Last time he explained how retail investors are paying up to 60 — yes, 60 — times more than institutional investors to invest in the same fund. In this article he looks at the fund information given to retail investors before and after they invest. The documentation provided to them he says, is woefully inadequate.


For many retail investors, the subject of performing due diligence prior to investing may well come down to a quick review of a “Best Buy” list or the fund’s Factsheet. For others, like myself, it is far more complicated and may be as a direct result of seeing so many odd things going on in funds over the years.

Most funds these days have a “Recommended Holding Period” (RHP) of five years or more — the RHP is reported on the fund ‘Key Investor Information Document’ (or KIID). It is an indicator of how long the fund investment should be held before it should come to fruition and provide the investor with the return “promised” at the time of purchase of the investment.


What investors need

If, as an investor, I am expected to wait for five years for my return, then I like the idea of being able to also look backwards five years to see if that performance promise was ever delivered. I also want to understand if there have been any material changes to the fund over the preceding period, such as a change in the investment objective.

In order to do that, I might well want to view key fund documentation, such as Key Investor Information Documents (KIIDs), Prospectuses, Annual Reports and ‘Assessment of Value’ Disclosures.


The documents provided are inadequate

If, like me, you are a client of one of the UK’s many investment platforms then you may have noticed that only one copy of each of these important fund documents is available for you to read — that is if they are available at all. Also, the consumer only gets to see  the latest version of the document, which usually means a semi-annual or interim report, covering, say, the last six months. What about the previous year, or the year before that? Nothing.

And then there is the fund’s Founding Document. For a unit trust, for example, this would be a Trust Deed. For me, it often contains juicy bits of information that might not be reported in any other fund document, yet it is not available to the retail investor. It is a glaring omission as far as I am concerned and it puts us retail investors at a serious disadvantage. It appears that what fund documentation is available is only there to support the purchase of your investment and the revenue generated from it for the investment platform.


Fund document libraries not up to scratch

As a general comment, fund document libraries on most, if not all, retail investment platforms in the UK are just not up to scratch and do not help us to undertake proper initial and ongoing due diligence. If you use an investment platform, please take a look and decide for yourself.

If you think that having fund documentation relating to your investments is really not that important. then ask all of those Woodford Equity Income Fund investors who had nothing to refer back to when their fund blew up. It is certainly good practice to keep a copy of all available fund documentation related to your investment at time of purchase. Once you sell out of your fund holding, your request for historical fund documentation will simply not be entertained, even if it relates to a period where you did hold the fund.

Investment platforms looking at funds to add to their retail “best-buy” lists and institutional investors looking to invest in any given fund would certainly not perform their due diligence based on the fund documentation currently available on a typical retail investment platform. So why should we retail investors be expected to?


We need a public repository

From what I have seen, the UK is in need of a public repository to store and disseminate all documentation relating to retail and other funds from launch date onwards.

Now, asking that bigger question again: Is retail unit-holder inequality limited just to the differential in share class costs and asymmetries in fund documentation? I think not.


SUNIL CHADDA is a a member of the All Party Parliamentary Group for Personal Banking and Fairer Financial Services, an ex-Special Adviser to the Association of Professional Fund Investors, and an Ambassador of The Transparency Task Force.



Here are some other recent posts you may have missed: 

2021 was third-worst year on record for US active managers

Patrick Geddes on giving back through investor education

Market forecasts: why we just can’t stop ourselves

Marina Ovsyannikova, we salute you

The less you understand, the more you pay



Have you discovered The TEBI Podcast? You’ll find it on SoundCloud, Spotify, Apple Podcasts, Podbean or your preferred podcast provider.


© The Evidence-Based Investor MMXXII




How can tebi help you?