Investors' views on PDS disclosure
The FMA has today published its research into investor behaviours and attitudes towards disclosure within Product Disclosure Statements (PDS). The report summarises feedback from investors (through interviews and an online survey) that have recently invested in New Zealand securities offerings requiring full PDS disclosure. The report intends to assist New Zealand issuers, and companies intending offer securities, to make more useful disclosure to investors. The FMA's report can be found here.
The research has confirmed that the PDS is viewed by investors as a useful tool when considering whether to invest in a financial product, and investors view the PDS as an improvement to previous offer documents prepared under the Securities Act 1978. However, the research has shown that there is still room for improvement.
The key findings of the research are:
- Simplicity and accessibility: The PDS should use plain English to describe the offer and investment information, including the financial information and metrics, and issuers should tailor the PDS for online and electronic use by using hyperlinks and chapters.
- Management information: Investors are especially interested in the management team and key executives of a company. Leadership of an offeror is particularly important as investors see a direct correlation between the quality of management and the company's ability to respond to opportunities and risks that may affect investor returns. Respondents considered that poorly-led companies are riskier than those with below-average financial performance.
- Risks: The research highlighted that currently, investors see the 'risks' section of a PDS as too broad and generic. Investors want more product or issuer-specific risks that are uniquely applicable to the offer and information on how the risks may impact their returns. Risks should be carefully drafted to provide investors with flavour around why the risk is specific to the issuer. The FMA has also communicated that risks should be linked to how they might impact each 'key driver of return' described in the PDS.
- Financial information: Investors find financial information disclosure too complex, with overuse of extensive notes. Disclosure in the PDS should focus on the key financial measures. The FMA considers that complexity in financial disclosure also arises as issuers tend to make too many adjustments and do not use plain language. The FMA indicated that it will publish specific guidance on disclosure of financial information next month.
- ESG information: Investors have also indicated that they value disclosure about a company's policies and performance relating to environment, social and governance (ESG) issues. Issuers should consider how best to disclose this information within their PDS.
The FMA has stated that it expects issuers to use the findings of the research to improve their disclosures in PDSs, with a view to making them more readable and user friendly for all investors.
Talk to one of our experts to discuss how this research will impact you and what we can do to help.
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