Diana Burns, 4 April 2011
Financial sector reforms are leading to strong calls for plain English
If you work in the financial services sector, you’ll know that big changes are under way to the way you write and report information to your clients. If you’re a consumer (and who doesn’t have a credit card or receive financial statements?), you’ll welcome financial information that you can read and understand. In December last year, we saw new regulations for financial services and advisers. The Financial Advisers Act comes into force on 1 July this year.
The new regulations are good news for consumer — they mean all financial advisers will have to be registered and accredited. And there’s a new emphasis on clarity.
New Zealand’s financial services are moving from being largely unregulated to being highly regulated — and not before time, most commentators say. Given the impact regulation is likely to have on the clarity of financial contracts, we agree.
The purpose of the Financial Advisers Act is ‘to promote the sound and efficient delivery of financial adviser and broking services and to encourage confidence in the professionalism and integrity of financial advisers and brokers’. Transparency is the watchword, and plain language is at the heart of the change.
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Government wants plain English as part of securities reform
The Government has made it clear that it sees plain English as a key plank of democracy, and of financial literacy. The Minister of Commerce, Simon Power, plans to consolidate securities legislation into one new law that will have investments more tightly supervised, greater scrutiny of financial brokers and fund managers — and plain English documents. Simon Power recently released the Cabinet’s decisions on its review of securities law, ahead of a planned new bill to go before Parliament later this year.
The reforms will ditch prospectuses and investment statements that the Minister described as being written in ‘sometimes torturous and arcane language’ and replace them with a single product disclosure statement ‘tailored to real investors’. We expect that will mean a strong emphasis on plain English.
Simon Power’s commitment to plain English for financial documents is backed up by comments by the Attorney-General, Chris Finlayson. He said at the WriteMark New Zealand Plain English Awards last year that ‘clear and accessible law is a fundamental part of the rule of law. People need to be able to understand legislation. The courts need to be able to interpret legislation’.
The Select Committee reporting on the Financial Advisers Amendment Bill said, ’Clear plain English documents would be a significant step towards ensuring that people are well informed and that they can make reasonable assessments of the risk of the investment they are proposing’.
Ministers Power and Finlayson, and the Select Committee, all know that unclear legal and financial documents not only waste time and money, they can be dangerous too. It’s easy to get into deep financial trouble if dense, difficult language means people don’t know what they are signing up for.
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Financial sector leaders are backing the move to plain language
‘Bring it on!’ That’s the enthusiastic response from the Retirement Commissioner, Diana Crossan, to new finance sector regulations. She’s been pushing for greater clarity and transparency in the sector for years, and says the changes are long overdue.
But Diana is concerned that the changes don’t go far enough. Information on KiwiSaver still needs to be a lot clearer and easier for consumers to understand, she says. And people still don’t get clear information about how best to manage their credit card debt or how to compare products easily.
‘Financial agreements usually haven’t been clear enough for the punter in the street’, agrees the Executive Director of the Financial Services Federation. Kirk Hope says the obligations and responsibilities of both parties should be clearly set out in plain English to give people the greatest chance of understanding them. ‘Consumer financial agreements tend to focus on complying with the law, so they can often be quite long and written in complex legalese’, he says.
Investment disclosure ‘often provides too much information in a technical way, which makes the documents inaccessible because businesses are tying themselves in knots, trying to do what the Government has asked them to do’, Kirk says. He hopes that the new regulations for the financial sector will lead to short, concise documents that clearly outline the risks of any investment. It would be helpful if marketing material was clearly separated from information about the risks of the investment.
‘When persuasion is mixed with information, it muddies the waters’, he says. ‘Consumers need to know what their finance company or adviser is doing, and they also need to balance the benefits with the risks.’
Catriona Grover, a partner in Kensington Swan, has been reported as saying, ‘Key information is often lost among copious amounts of marketing material and indecipherable legalese’.
At Write, we believe important financial information must be clear and easy to understand. And it can be done — no matter now complex the material. The Government’s moves towards plain English in financial writing are a big step forward.
Diana Burns is one of Write's plain English specialists
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