The AIC has published a report called ‘Burn before reading’ which concludes that KIDs are unfit for purpose and misleading due to their reliance on past performance as a basis for future projections. 

In its response to the FCA’s ‘Call for Input: PRIIPs Regulation’, the AIC has also urged the FCA to act swiftly to protect consumers and warn them not to rely on these documents when making investment decisions.

The AIC has also called for the Treasury Select Committee to launch an enquiry into KIDs given the “failure of policymakers and regulators to take action to protect consumers.”

Ian Sayers, chief executive of the Association of Investment Companies, said: “The evidence is overwhelming. KIDs are not simply unhelpful, they are actively misleading.  As more experienced investors will just ignore them, it is the less experienced who will suffer the most. 

“Telling investors that they can have high returns at medium-low risk in unfavourable markets is particularly toxic and entirely divorced from reality.

“Imagine an investor who puts money into the stock market today based on the huge potential gains being shown in many KIDs. Then the market suffers a significant correction. As our analysis shows, an updated KID for the same investment might then tell the investor that they now stand to lose more money if they continue to hold. So they sell. 

“It is the classic ‘buy high, sell low’ mistake that is doomed to lose unwary investors money and it is hardwired into the KID. It will continue indefinitely through changing stock market cycles.

He said the KID rules should be suspended now so these fundamental flaws can be addressed. He also wants regulators to warn consumers who have already received the documents not to rely on them when making investment decisions. 

He added: “If regulators continue to delay taking steps to protect consumers, then they should be held accountable if investors lose money as a result and feel they have been misled. It is nearly nine months since these documents were first produced and the reality of them was there for all to see, yet there has been no meaningful response from policymakers or regulators.”

In its evidence, the AIC points out a number of misleading performance scenarios shown in KIDs including:

•11% of investment company KIDs indicate that, in ‘moderate’ market conditions, investors might get returns of over 20% per year over the recommended holding period

• 51% indicate returns of between 0% and 10% per year in ‘unfavourable’ markets

• 11% indicate returns of between 10% and 20% per year in ‘unfavourable’ markets

The AIC says there is also misleading disclosure of risk with poor comparison between investment companies and open ended funds. These suggest investment companies are significantly riskier than open ended funds, says the AIC.