Will PRIIPs Help EU Investors?
A chair of the ESMA (European Securities and Markets Authority) Steven Maijoor said that the findings of a European Union review of mutual fund costs and fees due in 2018 will help investors make better choices in a sector. Specifically, it will help understand why some "active" funds that charge more for selecting stocks, perform less well than cheaper "passive" funds that track a benchmark.
Maijoor claimed: "By the end of this year we will deliver a review on UCITS costs and charges and their impact on long-term performance". Adding that costs and charges of EU funds can easily be double the charges in the US.
Passive investing has seriously grown due to "persistent problems" with active strategies to outperform passive strategies. ESMA chair noted: "We are seeing in general that active investment strategies have trouble performing well. Taking into account costs and charges, they typically do not outperform passive investment strategies".
Also, the European Union presented a PRIIPs, a new transparency rules for retail and insurance based products in January. It suggests that companies should release a so-called KID, which stands for key information document, in a standard format in order to compare output more easily. Chief executive of Britain's Financial Conduct Authority Andrew Bailey claimed he was worried PRIIPs isn’t helpful. He said: "There is evidence that funds, for instance from the U.S., are withdrawing from Europe to avoid the burden. I have also heard concerns about performance projections”.
Steven Maijoor acknowledged that it was too early to assess the result of a new program. He said: "We need to better understand what are the issues around implementation,” adding: "With many pieces of legislation, we have issued Q&As and guidelines to support implementation. I cannot exclude that could be happening here. From my perspective that would be business as usual".