Do investors understand what you are saying?
Recent research from asset manager abrdn shows that just under half of the UK population has ‘poor’ financial literacy.
As the Financial Times reported, the research contains some illuminating, if not downright worrying, stats:
- “Almost seven in 10 (66 per cent) could not identify that buying a single company stock entails more risk than buying a fund that invests in the stock market on your behalf.”
- “42 per cent could not work out that if their money earned a lower interest rate than the inflation rate it would lose its spending power.”
There’s more bad news for lovers of long, complicated sentences. The Consumer Duty Guidance issued by the FCA has some other choice numbers:
- Research by the National Literacy Trust has found that one in seven adults have literacy skills at or below those expected of a nine- to 11-year-old.
- The Financial Lives Survey also found 17.7 million adults (34%) have poor or low levels of numeracy involving financial concepts.
The result of this, in government circles, is that the GOV.UK pages are written for people with a reading age of nine, and the recommendation from the regulator is that firms may wish to consider how their communications can achieve this…
In the investments space this is undoubtedly going to create some challenges! Is it reasonable that a firm selling the most basic of current accounts do so in a way which can be understood by a nine-year-old? Yes. Is it reasonable that people purchasing investment vehicles such as investment trusts, exchange traded funds or open-ended investment companies can at the very least understand the names of the products we’ve just listed? Yes. Could a nine-year-old? Doubtful…
So how can we address this issue to create compelling communications that can be understood, or even enjoyed, by the target market for which they were intended?
Well helpfully the FCA have already opined on this in Section 8 of their Consumer Duty Guidance. In their view effective communications are:
- Layered
- Engaging
- Relevant
- Simple
- Well timed
Even more helpfully the FCA also explain what each of these things means…
Layering: This is where key information is provided upfront with cross-references or links to further detail and can be particularly effective online.
Engaging: Communications should be designed in a way that encourages consumers to engage with them. This is particularly important where the communication is prompting the consumer to act. The key information should be easy to identify.
Relevant: Firms should consider the appropriate level of detail for each communication. They should take into account what customers need to know, the kind of decision to be made by their recipients where applicable, and where confusion could arise.
Simple: Effective communications will present information in a logical manner. Where possible, jargon or technical terms should be avoided. Where the use of jargon or technical terms is unavoidable, firms should explain the meaning of key terms in plain and intelligible language that consumers are likely to understand. This will also help to build consumers’ trust.
Well timed: Firms should communicate with customers in a timely manner and at appropriate touch points throughout the product lifecycle, such as at contractual breakpoints, giving them an appropriate opportunity to take in the information and, where relevant, assess their options.
So how does this work in practice? At Warhorse our team have a very long collective track record of creating communications that work. For example our Section 793 letters frequently achieve above average response rates, and our email newsletters get fantastic open rates.
Over the years we’ve amassed a wealth of experience which cuts through the clutter and helps to create compelling communications. Drop us a line to find out more.