The FCA is calling for smarter consumer communications, encouraging the industry to write “for the consumer first and then ensure communications are compliant, rather than the other way round”. This view makes sense and consultants, such as Oxera, have made the point that disclosure is academic if it is not read and understood by the customer.
With millions more people coming into contact with investment managers, due to the ongoing pension changes, it’s crucial that the industry is able to speak in plain English. Improvements are certainly happening – with due care and attention.
Investment management firms, platforms and advisers are trying to write more clearly, using formats such as videos, infographics and Q&A; and many are testing their output with their clients as well as potential clients. The terms and conditions of a product or service are still accessible, but the aim is that they are no longer a barrier to the reader’s engagement.
In its ongoing commitment to improve transparency, the Investment Association intends to help these efforts by facilitating a collaborative approach to simplifying language across the industry.
We have kick started a project to create an investment glossary to encourage clearer and more consistent communication with investors. We have also formed a panel of consumer champions, journalists, financial advisers, and communications and industry experts to provide advice and input.
Sensitive to the different levels of existing knowledge of our readers, our plan is to “layer” our explanations. We will begin with a short definition in plain English – resolutely trying to avoid explaining jargon with jargon, especially for generic, non-regulatory terms such as benchmark, volatility or performance.
The second layer will contain further information, with links to related investment terms. If appropriate, a third layer will be available for more studious users to drill down into the detail, including links to external sources of information.
The glossary will be a live resource and a hook for open debate where there is a range of interpretations about what a term means. We need to beware of confusion – do we make ourselves clear, for example, when we use the term “risk profile”? Sometimes it is used in relation to a fund, but actually, is it more readily understood as the outcome of an attitude to risk assessment?
New investors inevitably have to learn some techie terms and we can help them. Regulatory documents, such as the Ucits KIID, which was specifically designed to disclose key information in plain language, still include terms such as “performance fee” and references to different forms of risk – credit, liquidity and counterparty. The glossary as a whole should be an index, not just a route to further information, but also to good practice, with resourceful examples of how to explain technical terms and concepts.
Throughout this process, we will ask end-investors for their views – pulling together evidence and new research findings from our investment manager members, advisers and platforms, the Money Advice Service and other consumer-facing information providers.
Nest’s research on improving consumer confidence in saving for retirement, for example, has some salient findings among people who tend to want “reassurance not more knowledge” when it comes to investment communications. We are also conferring with sister trade associations, such as the ABI, which is addressing the same issue from a pensions perspective, and with the WMA and the AIC, whose glossaries overlap with ours.
Ultimately, this initiative has to be a joint effort. Our hope is that providers, advisers and anyone else writing about investment will use the glossary explanations in their communications and direct their customers to it.
Victoria Nye is director of training and education at the Investment Association.