IRs and fund marketers face a tricky task in making complex issues clear throughout their communications. Sadly, clarity is still missing for many end investors.
Earlier this year, Broadridge Financial Solution conducted a controlled trial to determine which standard-form investor communications were understood (or misunderstood) by 1,500 readers.
This was done through testing three versions of a UK savings disclosure. In its original legacy-format version, a small 15% of readers were able to answer basic comprehension questions about what the letter meant for them.
Yet directly against that concrete figure, more than 80% of readers rated every version of the letter to be “clear, fair, and easy to understand.” In essence, they were not aware of their own misunderstandings.
Which version had the best results?
It turns out that disclosures which used personalised numerical examples (linked to a reader’s own likely outcome) increased their understanding that any inaction would have consequences. The figure rose from 32% to 59%.
A redesigned version purely built around behavioural science principles more than doubled comprehension against the control group. A generalised plain English rewrite, it turns out, is not enough to get readers on board.
So, what does this mean for fund marketers?
This Broadridge study was commissioned to press for regulatory reform in light of the FCA Consumer Duty rules. In actuality, these findings are applicable beyond UK retail banking.
The legal and compliance reviews of investor letters, quarterly commentaries, capital call notices, etc. are all conducted to optimise their compliance defensibility. Comprehension is clearly not given the same level of focus, shown here by customers’ concrete results.
Compliance legalities are unavoidable and will likely always affect comprehension to some degree. But the main pitfall is both LP and advisors’ perceived clarity. If an IR reaches out on an investor satisfaction call to ask for any further questions, the respondent will not surface their genuine concerns, feeling they have understood the communication perfectly.
Helpfully, the survey’s ‘best example’ offers a course-correction for producing understandable materials. Loosening compliance language and keeping general contractual terms will not do much. Adding personalisation layers onto it will, including showing investors their specific redemption timelines and fee impact.
Furthermore, IR teams that directly test the comprehension of their own investors and advisors, rather than inferring it from open rates or absent compliance, will be at the top of the pack in serving their clients’ best interests.
Source
Broadridge Financial Solutions, “The Consumer Duty Compromise”
