Use clear and consistent language says Investment Association
4 March 2019
The Investment Association has produced a guide for fund managers, providing a series of recommendations to help fund managers address these issues and provide greater clarity when communicating about their funds.
The guide has arisen from the FCA’s Asset Management Market Study Final Report (MS15/2.3) (‘Final Report’). This Report highlighted, among other points, the difficulty for customers of knowing what to expect from their fund and how to assess whether or not it was performing against its stated objectives.
The Association carried out consumer testing in partnership with The Wisdom Council. The testing explored how customers interact with the fund industry, how best to engage them in the key documentation, and the clarity of language in objectives, policy and strategy as well as customer expectations regarding performance reporting, risk and time horizons.
It found that three-quarters of investors struggle with technical terms and there were a number of challenges which savers faced:
The Association said that while the guide aimed to promote the use of clear and consistent language when writing fund objectives and the investment policy of a fund, there were a number of overarching key points that need to be considered as overall context.
1. A focus on mindset, rather than compliance.The guide said that firms should not view the development of fund documentation content as solely an exercise in compliance, “but also actively seek to always speak to customers in language they will understand and address the most important issues for them. This principle should inform the creation, design and approval stages of documentation.”
2. The IA said the guide was “for support not prescription” as there were no right answers in how communication should be developed. “The underlying goal for the IA is to provide a framework to help firms start thinking differently and more consistently about their use of language.
3. All fund communication were in scope, with improvements sought inregulated material and in marketing communications. It added that consumer research showed “that the ‘how’ as opposed to the ‘what’ can be as important as the information itself. While this Guidance does not extend to the use of different communication channels and technologies, firms are encouraged to consider this.”
4. Balance between concision and simplicity. The IA said there was “clearly a challenge in striking the right balance between being succinct in fund disclosure documentation and avoiding jargon or technical terms that are designed to describe a concept in a concise manner.” Th guide sought “to find a balance between the two”.
5. Responsibility throughout the distribution chain. The IA said the guide could apply to all customers, advised as well as non-advised, as the consumer testing showed that both advised and non-advised customers experienced difficulties with terminology, “although the issue was generally more pronounced in the non-advised market, with the notable exception of experienced execution-only customers”.
It added that “clear disclosure and good customer information is a responsibility throughout the retail distribution chain.” although it may be more important in the context of retail customers making their own investment decisions.
Plain language and consistency
As well as using plain language, the IA is recommending fund managers to use terms consistently across their communications so that savers are able to compare products more easily.
The IA’s guide includes a list of over 35 frequently-used terms, explained in simple language (see page 14-16 of the guide).
It also suggests a number of simple remedies, such as swapping the terms fixed income and equities, to bonds and shares which are better understood by savers.
For more complex concepts, such as risk and time horizons, asset managers should look to provide more detailed explanations.
Savers were found to prefer a written explanation of how risk affects their fund rather than simplistic rankings alone. When describing time horizons, rather than using short, medium and long-term, asset managers should provide the number of years.
Chris Cummings, CEO of the IA, said: “With 75% of households saving into a pension or investment fund, we need to find a better way to communicate with our savers. Our industry needs to speak to savers in the language that they understand and the IA is leading a programme of change in this area.
“Savers should be able to understand the objectives of their funds in clear and simple language, so that they can choose the products that best help them achieve their financial goals.
“Our guidance is designed to complement the current work of the FCA and help fund managers achieve greater clarity in their communications.”
Professional Paraplanner’s publisher, Research in Finance (RiF), is a leading research company in the financial services sector. On occasion our readers...
This week sees the launch of The Paraplanner Club, a new initiative devised by Siân Davies Cole and Chloe Phillips, a mentoring...
Professional Paraplanner has teamed up with Brand Financial Training to answer your questions around the exams scheduled for 2021....