If you’ve bought a long-term, goal-oriented investment product from your bank, insurance agent or broker, there is a good chance it’s a Priip.
Priips stands for packaged retail and insurance-based investment products.
They “are investment products that banks typically offer to consumers, for example, when they want to save for a specific objective such as a house purchase or for a child’s education,” the has said. The Priips market across Europe is worth roughly €10trn, the commission estimated.
The label covers financial products that invest in assets which are not directly owned by the consumer. “Products in the package generally include stocks, bonds, insurance policies, as well as structured funds, structured deposits, and structured products,” explained . They are generally offered “to consumers in the EU as an alternative to savings accounts.” Priips “provide a return over time, and have an element of risk.”
Like all investments, there is an element of risk, indeed. The Luxembourg Financial Sector Supervisory Commission () stated that “a Priip is an investment where, regardless of the legal form of the investment, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor.”
Key information document (Kid)
Financial advisors and salespeople need to provide consumers with a key information document, a Kid, before they decide on the investment, the CSSF noted. Each Priip has its own Kid.
Investopedia said: “These documents must be no longer than three pages and must contain outlined information, including a general description of the provider, an explanation of the main factors that the investment’s return depends upon, the level of risk associated with the product (classed from 1 to 7), an indication of the possible maximum loss (including four performance scenarios), and a table explaining the costs of one’s investment over time.”
The point is to provide retail investors with a coherent way to make apples-to-apples comparisons, and allow financial firms to produce standardised marketing materials that can be used across the bloc.
The rules took final effect in July of this year. (The was pushed back by Mairead McGuinness, the European financial services commissioner, after many firms with meeting the requirements on time.)
Kid vs Kiid
Starting on 1 January 2023, the Priip Kid format will be extended to retail investment funds, according to the consultancy and law firm .
Fund firms will have a choice. They can use the same Kid they need to produce under the Priips regulation to replace a document that is, confusingly, similarly named: the key investor information document (Kiid). A Kiid is a two-page document produced under separate Ucits rules that contains slightly different information.
In some cases, fund firms will continue to produce both a Kid and a Kiid, but many are expected to simplify their documentation process and focus on the Kid.
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Next week’s jargon buster: primary and secondary markets.