Financial providers can leave you baffled by the complex language they use. We look at whether firms play by the rules.
The financial world can be a confusing place. With everyone from banks to insurers and estate agents to the taxman speaking in jargon, it can be difficult to know your LTVs (loan to values) from your VCTs (venture capital trusts).
Should financial providers do more to ensure customers know exactly what they’re signing up to? Or do firms deliberately try to baffle customers by using confusing language?
Research conducted by insurer Aviva in February 2017 found that two in five (41%) people ignore information they receive from financial providers because they do not understand the language used.
This is equivalent to 21 million people in the UK, with 13% of these – 2.7 million – saying they have missed important changes to their financial accounts because they have ignored paperwork. But is this the fault of individuals or should financial providers do more to help customers understand product and money issues?
Lee Monks, spokesperson for the Plain English Campaign, says many financial organisations use too much jargon.
“Banks could do more to make their information clearer in general,” he argues. “The difficulty is turning that impenetrable stuff into something everyone can understand and engage with. I think the main problem is banks think ‘we understand it, so everyone does’.
Patrick Connolly, financial planner at adviser firm Chase de Vere, believes this is an industry-wide problem.
“There is a real danger that much of the information provided by financial institutions can leave consumers feeling confused, and this means they are less likely to be engaged with their finances,” he says.
“Part of the problem is the way that information is presented and the language which is used. Another key issue is that the level of financial literacy and competence in the UK is too low; many people don’t understand the basics of personal finance.”
While consumers should always try to understand the terms and conditions they’re signing up to, some believe that firms are wilfully keeping their customers in the dark to sell them products they don’t need.
Past mis-selling scandals are still fresh in the memory, and Mr Connolly says some firms are still not presenting facts to customers clearly enough. “In the past, some financial companies may have had a vested interest in their customers not understanding what was happening with their money and, more pertinently, how much they were paying in fees and commissions,” he says.
“This still happens today and it can sometimes be very difficult for consumers to fully understand how much they are paying and what they are getting in return. This is particularly the case where companies are selling their own investment or other products, which are often not the most competitive on the market.”
Mr Monks says many of the complaints received by the Plain English Campaign in the past suggested providers have tried to mislead customers, but he argues that most firms now play by the rules.
“The mis-selling of all kinds of banking products a few years ago certainly came across as a case of wilful deceit,” he argues. “That was the perception among those who contacted us.
“We know there may be occasions when banks are quite happy to leave their customers in the dark, but in the main it’s surely just a misapprehension of what can be understood by non-experts.”
While people of all ages can be left scratching their heads, older people can be particularly vulnerable to confusing financial jargon Jane Vass, head of public policy at Age UK, says the move from face-to-face service towards the internet has disenfranchised many older people. “Most of us find financial jargon baffling from time to time, and older people are like any other consumers in this respect,” she says.
“However, it all gets even more difficult when you have to get to grips with a new financial product or system, such as contactless cards. We know that this continual change can be a particular problem for older people, who are used to managing their finances in a certain way, and many of whom are not confident internet users.”
Pensions are a particular area of concern, and people can often end up making life-changing financial decisions when they don’t understand their options.
Aviva’s research shows that while 43% of adults know that Lima is the capital of Peru and 26% can fully explain football’s offside rule, just 22% could describe what a defined contribution pension is – for the answer, read the Moneywise jargon buster.
Both Mr Monks and Mrs Vass agree that the pensions industry is one of the worst offenders when it comes to using excessive jargon.
“The pensions industry is riddled with difficult-to- understand language and product names that most people haven’t heard of, made worse by complex decision-making processes,” says Mrs Vass.
Mr Monks says pensions companies should invest in better training for their frontline staff.
“One of the key issues of late has been the problems people have had trying to understand their pension options and permutations. Staff need plain English training,” he says.
The Association of British Insurers (ABI) trade body has introduced voluntary codes of practice to try and improve the quality of communication in the insurance industry. Mrs Vass would like similar schemes to be launched in other areas of financial services.
“This is something we fully support, and urge the Financial Conduct Authority (FCA) and government to do more to extend its usage,” she says.
“We also think that it is really important for firms to learn from their customers by thoroughly testing their communications with consumers.”
Mr Connolly says that the FCA has already made companies present their information more clearly, but this will always be balanced against the need to give the customer all the information they are legally required to.
“There is a difficult balancing act in information being presented in a clear and transparent way, while at the same time including all of the necessary details such as any relevant risk warnings,” he says.
“The result is that financial companies sometimes have no choice but to include certain information and language which, while relevant, might not always be easy for people to understand.”
Help at hand
Independent financial advisers (IFAs) are best placed to help people with their finances, but at a cost.
An IFA will scour the market to find the best deal and will explain exactly what product you’re about to buy or invest in. But the average hourly fee for a financial adviser in the UK is a hefty £150, according to adviser-finding website Unbiased.
Fees can be even higher depending on the financial products you need advice on and the level of service provided.
However, Patrick Connolly, financial planner at Chase de Vere, says that by shunning financial advice, many people end up making bad, long-term financial decisions.
“More and more people are now making decisions without speaking with a financial adviser,” he says. “This is because many people cannot afford to pay for financial advice or believe they are capable of making their own financial decisions. However, if they get it wrong, they are likely to have nobody else to blame but themselves.”
To find an IFA in your local area, visit www.moneywise.co.uk/find-an-ifa.
If you’re looking for free advice alternatives, ask your provider to break down any difficult banking terminology for you. Independent organisations worth turning to for free help and guidance include:
- Citizens Advice (Citizensadvice.org.uk, tel: 03454 04 05 06),
- Pension Wise (Pensionwise.gov.uk, tel: 0800 138 3944)
- The Pension Advisory Service (Pensionsadvisoryservice.org.uk, tel: 0300 123 1047).