The consequence of language is real and has a tangible impact on business. It’s an important lesson for the asset management industry, as firms compete in a competitive marketplace to sell funds to institutional and retail investors.
Fans of the podcast This American Life may be aware of the recent episode on the impact – intended and otherwise – that words can have, sometimes for years after they’re used. It told the story of the doctor who published an untested theory about MSG being detrimental to health, and how a misunderstanding between competitive cyclists led to a years-long controversy over a race result.
UK trade body The Investment Association (IA) published the same week on a similar matter.
The IA released its Fund Communication Guidance as part of its agreed work following a 2017 report by the UK regulator, the Financial Conduct Authority (FCA). It highlighted the difficulties faced by retail investors when assessing and comparing funds, due to the use of language many are simply not familiar with.
Ultimately the guidance aims to promote the use of clear and consistent language when it comes to communicating fund objectives and investment policies. The goal: to help investors compare funds and to better understand whether a fund is living up to its stated objectives.
Consumer testing informed the guidance and naturally some findings were more surprising than others. Here are five things that stood out.
Consider all fund communication
Consumer testing revealed how fund information is provided can be just as important as the information itself. Though the IA has stopped short of providing guidance around the use of communication channels, funds should consider these as well as the tactics employed on each of them.
Think about where you are reaching retail investors – they may be a priority audience on some channels and not others. What does your segmentation look like on these channels, and what type of content are you serving them? And is the messaging as clear, concise and consistent as in fund documentation, albeit with a different format?
Take no terms for granted
In total, 35 words made the list of terms that should always be accompanied by a simple explanation. Emphasis was placed on the importance of brevity in these descriptions. Elaborating beyond the required detail was found to have the reverse effect, causing consumers further confusion.
It’s worth looking at the list of terms as all are frequently used and many could be assumed as easy to understand. As an example, the results showed ‘shares’ was better understood than ‘equities’. The guidance therefore recommends using the former whenever possible.
Technical experts and storytellers needed
Another key learning that emerged from the consumer testing was the importance of narrative, which was found to help consumers’ understanding during the fund buying process. It seems we are unable to shake our evolutionary inclination for stories even when investing.
Make sure the clear and consistent language encouraged by the IA ultimately builds a sound story. Find your in-house or agency storyteller and match them with your investment experts for impactful, understandable fund marketing communications.
Strong understanding of ethical investment
Presented with fifteen commonly used investment terms, consumers’ understanding of the terms was varied and ranked from strong to weak. Interestingly, ‘ethical investment’ fell in the strongest understanding category, above arguably more straightforward terms such equities and income. Perhaps this is due to ethical investing meaning different things to different people.
Terms with flexible definitions can feel well understood because people are defining it, at least somewhat, themselves.
It was notable that this was the only nod to ESG investment in the research. Given the rapid growth of ESG strategies and the varying definitions used in communicating them, it would not be surprising to see it included in future fund communication guidance.
Be consistent with language
The research also uncovered the importance of being clear and consistent for retail audiences, though surely professionals welcome this too. The guidance advised to not expect people to take the extra step of looking up phrases or context. This boils down to writing for your audience.
The IA guidance can serve as a useful starting point. Take it a step further and develop a lexicon for all fund communication, from documentation to marketing and media materials. This can be particularly helpful when several different teams produce content, or when adaptation is needed from professional to retail compliant versions. Relying on industry guidance around fund communication and marketing can serve as a benchmark to help you stay compliant and understood in the retail segment.
At a time of heightened scrutiny over both fund fees and the value of investment services, asset managers must clearly communicate their offering in an increasingly competitive market.