Dame Helena Morrissey, head of personal investing at Legal & General, has called on the fund management industry to speak in plain English to help consumers.
The fund management industry is “too exclusive in its use of language”, which in turn puts consumers off investing, according to Dame Helena Morrissey, head of personal investing at Legal & General.
In an interview with Money Observer, Morrissey says that one of the main barriers that deters people from investing is the widespread use of financial jargon, such as acronyms that only those who work in the industry understand. “To an outsider, acronyms look like code,” she adds.
One of the problems, according to Morrissey, is that the fund industry hides behind the obligation to meet rigorous compliance standards in its use of terminology in marketing literature – but this is often at the expense of clarity for the consumers reading it.
She says: “Often people (the industry) hide behind compliance and say we need to communicate in this way from a regulatory point of view, but I think more needs to be done to challenge that. While it may meet regulatory requirements, if the language is not clear no one will read it.
“We are challenging our own compliance officers to use as few words as possible and to keep it simple, so that the information for the end investor is accessible and relevant.”
According to studies by Boring Money, obscure terminology is cited as one of the key factors deterring women in particular from investing; one study showed that “getting rid of jargon” is top of the investment wish list for 42% of women respondents. To put that into context, only 23% of respondents favoured “guaranteed returns of 15% a year”.
The industry regulator is aware that fund managers struggle to get investment messages across to consumers clearly and effectively. In February, the Financial Conduct Authority (FCA) set out new rules that will require fund managers to use “consumer-friendly language” and stop using jargon in fund literature. In turn, this will make fund objectives “more useful to investors”, the FCA stated.
But, disappointingly the FCA does not have any plans to publish examples of good and bad practice, nor does it plan to publish a glossary either of jargon to be avoided or of consumer-friendly terms.
Morrissey welcomes the FCA’s intervention, but she points out that the industry needs to be more proactive to deal with the issue. “We need to emphasise to the regulators that we all want the same thing,” she comments.
As well as aiming to become clearer in its communications with investors, Legal & General is also striving to make the information more relatable.
Morrissey says: “Investors want to know what they are investing in and what they are investing for. For instance, instead of writing about carbon reduction, the language could be brought alive to tell investors how many fewer passenger cars will be on the roads per every £1,000 invested.”