Over the past 21 years I have helped product providers and financial advisers by creating disclosure information, whether that be for products or advice costs. I have created hundreds of new documents, set up consumer and adviser research groups and spoken to the regulator about what I believe would be best disclosure to suit the consumer.
We are now at a point where adviser charging documents can be more than 20 pages in length, terms of business for clients can be longer than 10 pages and product disclosure can be over 10 pages per product. Most clients take out more than one product when advised. When this documentation is added to a host of illustrations showing different options attached to the product, additional questionnaires, trust wording and brand marketing collateral, clients can be faced with more than 50 pages of complex information to decipher. The majority of pages have no visual aids such as diagrams or flow charts to assist understanding.
When we consider the psychology of understanding and learning, evolution has provided humans with a powerful set of skills that help us solve problems and plan for the future. The majority of us have a visual (spatial) learning style, a verbal (linguistic) learning style or a combination of both.
The regulator enforces firms to issue disclosure documents on the assumption everyone will understand lengthy documents by reading thousands of words. While skilful readers might relish a large pile of disclosure documents to read, the act of reading is complex and intentional.
Money Marketing’s recent front page lead story made me optimistic that the cost of the production of disclosure documents to both the consumer and the industry is being looked at by the Financial Conduct Authority. About time too.
FCA director of enforcement Tracey McDermott admitted that too much information can result in poor decision-making – agreed. More complexity to disclosure has been introduced – agreed. Disclosure has caused additional costs to firms – agreed. McDermott said the FCA is trying to work out
how and where to intervene.
The intervention solution is simple. Allow different delivery mechanisms of a reduced amount of disclosure information. There is no reason why disclosure cannot be spoken by word, for example on a podcast, or as a YouTube clip which can be watched anywhere on a smartphone or tablet. Paper-based disclosure would still be required for the highly intelligent who enjoy reading.
The content of disclosure documents needs to be reconsidered because, in the rush to be totally transparent, there are far too many costs that need to be disclosed. What other industry’s product purchase comes with obligatory breakdown of proportionately small costs?
The industry now needs to disclose advice cost choices, retainer fees, product implementation costs, platform cost, fund initial charge cost, ongoing charges for advice and annual fund charges.
There should be one median advice cost per client produced following the initial fact-find and a total expense ratio for products, including any platform charge.
We should stop disclosing the many layers of cost and charges options provided by financial advisers and product providers and use single combined figures. The client could then flex their ‘understanding muscle’ when it comes to disclosure.
Kim North is managing director of Tech & Tech