The investment fund industry needs to make investor communications clearer and easier to understand in order to help clients make responsible financial decisions, communications expert Peter Karavos said on Tuesday.

Karavos, managing partner of Toronto-based consulting firm Simplified Communications Group Inc., spoke at the Investment Funds Industry of Canada’s Financial Literacy Forum in Toronto. He said fund industry communication materials such as prospectuses, account agreements, marketing materials and statements are too often filled with jargon and complex language that most investors cannot understand.

“I think that the fund industry still has a long way to go, in terms of all those touch points that you send to clients, to improve the way that you communicate,” he said. “That’s really going to be integral to reaching that end goal of helping clients make responsible financial decisions.”

In particular, Karavos said industry documents often fail to include important information that investors need, and instead, feature information that is useless to most investors, since it’s written in language that they don’t understand.

“A lot of the information that people need and want is not there,” he said. “In most cases, the information that’s included is not communicated clearly.”

For investor communications to be effective, Karavos said investors need to be able to find the information they need, understand it, and then act appropriately on it. This is not the case for most financial product disclosure documents, he said.

“It’s not something that’s going to happen in a short period of time,” he said. “It’s a long haul.”

Karavos urged fund companies to design disclosure documents with four elements in mind: key content, plain language writing, well-organized information and inviting presentation.

Karavos applauded the Canadian Securities Administrators’ Fund Facts initiative, which will require fund companies to begin providing investors with a new two-page plain language document which highlights key information about a fund they’re purchasing. He said the document is likely to resonate with investors because of its plain language and organized, colourful and inviting layout.

“We’re heading towards the right direction here,” he said. “The end result of it does include information that people would be willing to engage with, as opposed to the simplified prospectuses.”

But Karavos said it’s disappointing that this initiative is being led by the regulators rather than the industry. He said it would be beneficial for the industry to be proactive on improving investor communications rather than being forced to comply with prescribed regulations.

“It’s much, much better for you guys to be leading this on a proactive basis,” he said, “as opposed to waiting for the next thing that’s going to come from the regulators. And you can be sure that there’ll be other things.”

He urged fund companies to consider reforming other disclosure documents that investors may be struggling with.

Karavos said the financial services industry has a major role to play in improving financial literacy, and improving communications between the industry and consumers is a key part of this.

“It’s your responsibility to ensure that the investor understands the message – not the other way around,” he said.

“It doesn’t matter what we do or how much effort we put into financial literacy,” Karavos added. “Until such time as there’s a serious effort across the industry – or maybe a few leading fund companies – to unravel that [language] and make it understandable, we’re not going to be able to achieve the end result to help people make informed decisions.”

IE