Under the Financial Markets Conduct Act (FMCA), disclosure statements for products such as managed funds are much more prescriptive.

Managers must include a risk indicator to make it clear to investors how volatile a particular fund is.

The risk indicator runs on a scale of one, indicating very low risk, through to seven.

It is calculated on the basis of the previous five years' returns.

The risk indicator is intended to help investors make decisions by providing them with a way to compare the volatility between various managed investment scheme products.

It is based on annualised standard deviations, calculated using the change in returns from week to week or from month to month over five years.  The more the actual weekly or monthly return differs from the average weekly or monthly return, the higher the standard deviation and the higher the volatility.

But there are concerns that the indicators may be unclear.

Because the system looks back over five years, during periods of significant upheaval, such as the GFC, all funds would look riskier than they really are.

During periods of strong returns, such as experienced over recent years, they may look less risky than they should.

That has prompted calls for another, clearer way to talk to investors about risk, including explaining to investors how a fund would have performed at various points through history.

But Rebecca Thomas, of Mint Asset Management, said the industry had to start somewhere and the risk indicators would be beneficial to investors.

She said while the best measure of performance was the longest history you could get, the five-year system was internationally recognised.

In New Zealand, the introduction of the PIE tax regime in 2007 meant returns before that time were not useful as a comparison anyway, she said.

She said the FMCA regime was meant to be educational and allow investors to compare funds with each other. "It's not saying bonds are better than equities but looking at all the funds and if one is a four and the others are all two, that will give investors an idea of the volatility of the product."

She said the industry had tended to report returns over a very short period and five years was an improvement on that.

Therese Singleton, AMP general manager of investments and insurance, said she was also supportive of the system, although she periods like the recent few years would be challenging to explain with a number.

Singleton said 10 years might be better than five as a basis for the indicator and that was something that could  be put to the regulator for discussion in time.

But she said a five-year period still had merit.

Thomas said there could be problems for investors determining the performance of alternative assets that were not normally included in managed funds.

If managers think the risk indicators will mislead their clients, there are other options they can use if they explain why they are doing so.