The FCA has published proposals today to cut the jargon used by platforms, advisers and wealth managers to hide and obfuscate the cost of investing.
The regulator says it wants to bring all investment cost disclosures into line with previous investment product disclosure reforms and create a “more consistent framework” for firms to give customers, “clearer, more useful information.”
Of 132 disclosure documents examined for readability by the FCA, only 6% were written in plain English.
The FCA says jargon and confusing terms are being used by some when communicating to clients the cost of investing and this is causing confusion and lack of understanding. It wants a focus on improving the use of ‘plain English’ when communicating with consumers so more understand what is happening with their money.
The FCA said the proposals in its paper published today - Consultation (CP26/24) - would enable firms to "innovate, test and compete" to inform and engage retail investors.
It wants firms to communicate clearly in “plain English, not jargon” and give information in engaging ways. It says this will also help consumers compare products more easily and invest with greater confidence, supporting a stronger investment culture.
The regulator said that consumers “struggle to understand investment costs” and their impact on returns. It said for example, 30% of non-advised platform users said they did not know how much they were charged for investing.
To help give consumers a "clear and balanced understanding" of costs and charges, the FCA is consulting on simplified rules for how firms communicate all the costs involved in investing, including products, distribution and advice.
Under the proposals, distributors would present their own costs alongside product costs consistent with the Consumer Composite Investments (CCI) format when selling products and account regularly for the total cost of investing.
The proposals also cover firms’ disclosures to consumers when they charge fees or pay interest on client cash.
Lucy Castledine, the FCA’s director of consumer investments, said: “We want more consumers to feel confident investing by getting clearer information in plain English on products and charges. The changes will give firms more freedom to innovate and communicate in ways that build trust and support informed decisions to help consumers navigate their financial lives."
The FCA says its changes are part of its wider work to support growth by creating a consumer investment market that is "resilient, competitive and better" for firms and customers.
From June next year, firms will need to follow the FCA’s CCI rules, which were finalised last year. This means they must change how they explain investments to consumers before they buy.
To support firms making this change, the FCA has also today published the results from its review of current pre-sale investment disclosures documents, which will need to be updated as firms embed the CCI rules. The review found that of 132 examined for readability, only 6% were written in plain English.
It also looked at these and a further 40 documents, from firms that both manufacture and distribute products, to see how easy they were to understand. All the documents were more complex than GCSE level.
The FCA will continue to work with industry to embed the CCI rules to make sure consumers have clear information to make better informed investment decisions.
Industry reaction to the plans has been mostly positive.
Rob Hillock, head of personal Financial Planning at financial consultancy Broadstone, said: "This consultation reflects a recognition that investment disclosures have become increasingly complex, making it difficult for consumers to understand what they are paying and the value they receive.
"A simpler, more consistent approach to presenting product, advice and distribution costs has the potential to improve consumer understanding while reducing unnecessary complexity for firms. The key will be ensuring that simplification doesn't dilute transparency or make it harder for consumers to compare products and services.
"Firms should use the consultation period to review how they communicate costs and consider what operational changes may be needed if the proposals are implemented."
• People have until 21 August to respond to the consultation (CP26/24). The proposals align with the FCA’s expectations under the Consumer Duty and Dear CEO Letter of 2023 relating to disclosure of interest on cash and double dipping.