The Financial Conduct Authority has called on fund managers to explain more clearly what their funds are doing, using consumer-friendly language.
The Financial Conduct Authority (FCA) has 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 notes.
As part of a package of new rules and guidance the city watchdog states: “In practice, firms should consider how to describe the objectives, investment policy and investment strategy in a concise way and without using jargon, to enable a retail investor to understand the product.
“We expect fund managers to explain what their funds are doing in consumer-friendly language. Clear and helpful objectives should mean better-informed consumers making decisions to invest in funds that are more suited to their individual needs and expectations.”
The consumer-friendly language will apply to all forms of marketing literature, including fund factsheets and key investor information documents. The new rules will come into force in six months’ time for existing funds, and in three months for new funds.
In addition, fund managers have been ordered to reference benchmarks clearly and consistently across fund literature. The FCA also requires fund managers who present past performance to do so against a comparable benchmark.
The move, while welcomed by Moneywise, is arguably a missed opportunity, in that the FCA has 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.
Therefore, the onus will be on fund managers to decide for themselves what language they deem to be consumer-friendly – which runs the risk of jargon creeping into fund literature in practice.
Christopher Woolard, the FCA’s executive director of strategy and competition, says: 'We’re working to make competition work better in the asset management market and protect those least able to actively engage with their investments.
"Today’s remedies build on those we’ve already introduced and will make it easier for investors to choose the best fund for them and help them achieve their investment objectives.”
Moira O’Neill, head of personal finance at interactive investor (Moneywise's parent company), says: “The FCA is right to put investment jargon under the microscope, although with the ball thrown firmly in the fund management industry’s court, investors shouldn’t expect any miracle cures any time soon.
“Jargon is the fund management industry’s own invention, after all, and has spawned a whole industry of fund management group content writers.
"Yet we’re still where we are today – with many investors still none the wiser. This is a particular problem for DIY investors who have the challenge of dealing with an industry that has mostly been established to deal with investors who use advisers."
For those who want to master the industry jargon, check out our latest jargon buster.
This article first appeared on our sister website Money Observer