In a revealing study conducted by Kidbrooke, the 2024 Fund Information Review highlighted significant gaps in how Swedish fund companies present crucial investment information to their clientele.
The research, which assessed 68 fund companies, found that a staggering 70% of these organisations failed to offer easily accessible and comprehensible information, thereby complicating the decision-making process for investors.
The review scrutinised fund companies for how well they communicated key details like currency exposure, risk levels, and Environmental, Social, and Governance (ESG) standards. The full report, which can be found here, sheds light on the transparency challenges prevalent within the Swedish fund industry and underscores the resultant impact on investor decision-making.
Most mutual fund distributors typically provide general information about available investment products. However, the fund management companies themselves are often overlooked sources of more detailed and nuanced information. Kidbrooke’s recent study delved into the public information provided by Swedish fund managers to better understand how these entities use their own channels to engage with current and prospective investors.
Although fund managers often link transparency to compliance and risk management, some policies adopted to promote better governance and sustainable investments can lead to unforeseen consequences, it said. For instance, Avanza’s decision to exclude Nvidia from one of their funds—citing sustainability requirements and limited oversight over external providers—resulted in 90,000 investors missing out on Nvidia’s 274% surge over the past year. This situation spotlighted the importance of maintaining rigorous control, oversight, and reporting of a fund’s risk profile.
The impending Digital Operational Resilience Act (DORA), which will come into effect across the European Union in January 2025, introduces new standards for managing ICT risks in financial institutions. This act will necessitate a strategic approach to third-party risk management, maintain thorough documentation, and ensure data processes are periodically tested and auditable. As a result, many fund managers, who typically conduct their data analysis via spreadsheets, will need to re-evaluate their methods to mitigate risks related to data integrity, security, and human errors.
Kidbrooke’s comprehensive study, conducted in the second quarter of 2024, assessed the ease of access, quality, and transparency of information on Swedish fund managers’ websites. Although the review did not assess compliance per se, it focused on how straightforward it was for an investor visiting the website to grasp the key attributes of the investment options offered. Despite high regulatory expectations, the reliance on dense PDF disclosures does not resonate with most investors and often goes unread, rendering it ineffective for educating them about fund characteristics.
The study assigned scores to each fund manager based on criteria such as client portal availability, data source display, information on significant investments, currency and geographical exposures, ESG policies, and update frequency. Sadly, around 70% of the fund managers scored poorly, with only 12% demonstrating best practices. The larger funds, equipped with more substantial teams and resources, generally performed better, particularly in automating data presentation and investing in sophisticated data display technologies.
Read the full report here.
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