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Commission européenne

La Commission européenne s'est dotée d'un comité d'experts financiers représentant les usagers des services financiers. Guillaume Prache, vice-président de la FAIDER en est le seul membre français.

European Commission – Initial orientations
of possible adjustments to UCITS Directive

Responses from FAIDER, Federation of Independent Investors Associations for Retirement (a French- based Federation representing 800 000 individual investors)

General comment
FAIDER participated to the European Commission 2006 workshops on the Simplified Prospectus, and to the Open Hearing panels of April 26 in Brussels. We note that most if not all of these “orientations” identified by the Commission are requests from the Asset Management Industry, not from the investors: funds poolings, funds mergers, management companies passports, etc. aim at benefiting the Industry. Even the Simplified Prospectus orientation seems based at least partly on requests from the Industry. We have nothing against the Commission being pro-business, as long as it ensures that its actions will also benefit the investors: it should be a win/win reform of the UCITS regulatory environment.
The benefits to the investors of these EC orientations need to be more clearly identified and ensured in our view.
1. Fund passporting
1.1. Compliance with local consumer laws
The asset mgt company should – at least for more complex products (e.g. structured ones) – should also provide commercial (advertisements, etc.) materials, to allow the local regulator to check this compliance upfront rather then later when the fund has already been sold in the host member state. In that case, the host regulator should be given more time than the 3 days proposed by the EC.
1.2. Investor information: a short, simple and single format simplified prospectus is a prerequisite to enable the investors of the host country to compare the fund with the others offered in that market.
2. Fund mergers
FAIDER supports the rationale expressed by the EC for allowing UCITS mergers, as long as it benefits or at least does not penalize investors.
FAIDER wishes to point out that the number one reason for merging funds is for asset management companies to erase the track record of poorly performing funds. Merged into a more performing one, they disappear altogether from the company’s records and from the industry league tables. Assert management companies already do that on their national markets to an extensive degree. For example, out of about 8000 French domiciled funds , about 1000 are merged every year (12,5%). The same practice occurs in the US mutual funds markets. It enables companies to show only the funds with the better track records in the data bases (the “survivor bias” in all funds performances statistics) . Only the historical performance of the of the absorbing fund remains.
Therefore fund mergers are not mainly driven by economies of scale as the EC presents them. Therefore its cost benefits estimates are questionable. It is key for the investor that these mergers are not penalizing him either in the absorbed or in the absorbing fund. Therefore:
2.1. Entry / Exit fees
The Management Company should reimburse the absorbed fund’s investors for the entry fees if they opt out of the merger: the part reimbursed should be equal to the part of time elapsed between the subscription by the investor and the merger, compared to the fund’s recommended holding period. That’s because, he will have ot pay entry fees again to reinvest his money.
Example: an investor paid 4 % entry fee in a fund that is merged one year after. The recommended holding period for this fund is at least 5 years. If the investor opts out, he should get back at least 80 % (1 – 1/5) of the entry fee he paid, i.e. 3,20 %, as he will most likely have to pay an entry fee again after only one year, if he wants to reinvest the proceeds in another fund. Of course, no exit fee should be charged to investors opting out of a proposed merger.
2.2. Transaction costs arising from the funds mergers
In some cases, the cost of selling the absorbed fund’s portfolio can be very significant: it should be borne fairly by the investors in each fund, and, if it is likely to be material, its impact should be disclosed to the investors prior to the merger.
2.3. Preferably, FAIDER recommends that the asset mgt company communicates a third party “fairness opinion” on the proposed merger to the investors in both funds.
2.4. Investor information: a short, simple, and single format simplified prospectus is a prerequisite for investors to be able to compare the 2 funds proposed for merger (sse section 5 below).
3. UCITS Funds Pooling (master/feeders)
FAIDER participated to this Open Hearing panel. It is clear that the Commission’s proposals under Option 1 (the less restrictive approach to funds poolings) or 2 (feeders investing 100 % in one master fund) will benefit the industry. But under the current initial proposals, it is much less clear how it could benefit the investors.
3.1. It is very likely to provide cost savings to the industry. But we have no guarantee that these savings will be passed on to the investors. If anything, fund fees have been on the rise in the recent past, rather than on the decline.
3.2. Fees disclosure: the aggregated fee should be mentioned very clearly in bold, and the fees of the Master and of the Feeder also identified separately.
3.3. We support the EC stand on master fund retrocessions (trailer fees) to the feeder: can only be allowed if not paid to any third party.
3.4. The management company of the Feeder Fund should bear responsibilities vis-à-vis the Master fund’s company equivalent to those of an asset management company using a sub-advisor. Indeed, it is up to the Feeder company to check that the master fund keeps in track of the Feeder fund’s investment objectives and other stated
features. This should be easy to do for the Feeder fund company as it chose the Master fund in the first place, and, therefore, must know it very well.
3.5. The most important being a short and single format Simplified Prospectus for all UCITS funds, as requested by the investors representatives at last year’s EU Workshops on the SP. If the investors do not have that, they will not be able to really compare a feeder and a master fund, and to identify the pros and cons between the two, and with other UCITSD choices (see below, section 5).
4. Asset management company Passport
No comments.
5. Simplified Prospectus / product disclosures
FAIDER believes that this is the key area of improvement for individual investors.
5.1. The Commission held two workshops last year on this topic. Three investors representatives participated to these workshops: the German Shareholders Association (Mrs. Benner-Heinacher), the FSA Consumer Panel (UK, Mr. Salvidge), and FAIDER (Mr. Prache).
FAIDER wishes to remind the Commission about the very clear and unanimous position of the investors representatives expressed at these workshops: we want a short, simple, and single format document for all UCITS.
Also, the April 26, 2007 Open Hearing clearly showed that investors and the industry alike are strongly supporting the single format document. It seems only one country regulator is opposing it, and for reasons we do not clearly understand.
It is all the more critical considering the current proposals of the Commission which are likely to increase the use of foreign-domiciled UCITS by European investors, versus locally domiciled ones. An individual investor must be able to easily compare two UCITS funds, especially if they are from a different country domicile. We are concerned that the Commission, in its initial orientations, seems to no longer push for this single format document. Unless it is a single format document for all UCITS, we believe we are wasting our time, as individual investors will NOT be able to compare the funds offerings.
5.2. Delivery obligation
For FAIDER, it is obvious that this UCITS single format document MUST be communicated to the investor before he purchases it, whoever is the entity or person selling it to him. We see absolutely no contradiction with MIFID there. The amended UCITS Directive does regulate UCITS products information to the investors, and therefore should mention that (in addition or complementary to MIFID provisions) , in the specific case of UCITS, the SP must be handed to the investor prior to the sale by whoever the distributor is.
We strongly disagree with the EC’s orientation not to make its communication to the investor an absolute requirement. This should be helped by the fact that we are advocating for a SHORT single format document. There, we would also be wasting our time discussing the SP, it it is not to fall into the hands of the investor.
5.3. Legal status of the SP
We support the EC orientation, as a compromise with the industry, which is reluctant to give the SP a full contractual value: the SP could not be used in legal disputes unless it contains false, misleading information, or information that is not consistent with the full prospectus’ one.
Finally, we refer to our presentation at the 2006, July 11 EC workshop on the SP cost disclosures and to our response to the 2007 CESR Questionnaire on the contents of the SP.
6. Eliminate heavy tax discriminations between UCITS from different domiciles
This major barrier to the EU single market for UCITs is surprisingly not addressed anywhere in the EC papers. It has been raised by participants to the April 26, 2007 Open Hearing. The biggest barrier to the European UCITS single market is the member states withholding taxes on dividends. This creates huge discriminations between the funds domiciles.
For example, a UCITS fund dedicated to Eurozone equities will pay low withholding taxes on dividends received if it is domiciled in France (no tax on dividends from French entities, a low tax on dividends received from other member states big equity markets, like Germany or Italy: usually 15 % according to the bilateral tax treaties). If the same UCITS fund is domiciled in Luxembourg or Ireland, it will pay usually around 25 to 30 % withholding taxes
on dividends from the major Eurozone equity markets. With an average dividend yield of say 3 %, this generates a significant penalty (about 0,45 % per annum or more) for investors in the latter UCITS versus the former ones.
FAIDER asks that this tax discrimination impact be clearly communicated to the investors before they invest in such funds.