Pan-EU 'fund calculator' would be huge IT project, warns expert

Earlier this week European Parliament's committee on Economic and Monetary Affairs voted to back draft new laws that would require retail investment product providers to provide small investors with more, clearer and marketing-free information about the products they are selling.

Regulators would be able to ban providers from selling particular products and issue those companies with fines of up to 10% of their total annual turnover if they fail to adhere to the new standards around 'key information documents' (KIDs).

According to a statement issued by the committee, the product providers could also be pursued for compensation by investors if they could show that they suffered a loss as a result of "identified information in a KID" being misleading.

The draft laws backed by the committee have not yet been published, but they contain provisions that would see a new 'online fund calculator' become available to consumer investors, according to a report by the Financial Times. The calculator would be available on the websites of national regulators, the report said.

According to a previous draft, put together for the Economic and Monetary Affairs Committee by rapporteur on the reforms Pervenche Berés MEP, the online calculator would "allow investors to compute the reward of a proposed retail investment product by entering information on the expected duration of the investment, the amount of the investment, and the assumed underlying investment return in percentage terms in order to determine the end value of the investment after costs".

The calculator would factor in "the costs and fees charged by the various investment product manufacturers ... together with any further costs or fees charged by intermediaries or other parts of the investment chain, not already included by the product manufacturers", according to Berés' draft.

In her report Berés said that the online fund calculator could function in a similar way to the 'Fund Analyser' that exists in the US under the oversight of the Financial Industry Regulatory Authority. The Fund Analyser "estimates the value of the funds and impact of fees and expenses on investments and also allows individuals to look up applicable fees and available discounts for funds", she said.

Pensions law specialist Simon Laight of Pinsent Masons, the law firm behind Out-Law.com, said that product providers would be "rolling their eyes at the prospect of yet more regulatory control and interference".

"Charges of new products are already unsustainably low," Laight said. "The problem for pension savers within new products isn’t so much transparency of charges, but quality of investment strategy setting and execution. This is being addressed by other domestic initiatives."

"We can point to the US and seek to emulate their 'Fund Analyser' model, but the US is more integrated than Europe and achieving a pan European fund calculator would encounter significant integration hurdles and amount to a massive IT project," he warned.

In a report published in September, consumer protection regulator the Office of Fair Trading (OFT) said that some savers were not getting value for money from the £275 billion defined contributions (DC) pensions market due to high charges on some older schemes, and low levels of trustee engagement and capability on some smaller schemes. It has agreed a number of reforms with businesses and the Pensions Regulator, and made a number of recommendations for further action.