Our response to the Financial Services Authority's consultation on consumer education
Head of Consumer Education
The Financial Services Authority
25 The North Colonnade
Dear Ms Arnott
We would like to respond to your consultation paper 'Promoting public understanding of financial services: a strategy for consumer education' (January 1999).
We have almost 20 years' experience of how language and information affect the lives of ordinary people. We have worked with all parts of the finance industry to improve people's understanding by rewriting confusing or unintelligible documents.
Your aim to increase people's understanding of financial issues has our full support. We have enclosed our responses to questions 2 to 7, for which our experience and research is most appropriate.
I hope our answers will prove useful for your work, and I would be pleased to give any more details or explanation that you need.
Chrissie Maher, OBE MA
Honorary Doctor of the Open University
Question 2: How important is the provision of impartial, generic, consumer information and advice? To what extent should the FSA develop its role in this area?
Plain English is all about giving ordinary people the power to make informed decisions. We are most concerned with decisions that seriously affect people's lives. Financial decisions are among the most important people will ever make.
Clear, comparable information will allow people to make the decision that is best for them. We believe the information you regulate must serve two purposes.
- The reader must fully understand the consequences of any decision they make, including the result of any action they take in the future, such as paying a loan off early.
- The reader must be able to make a fair and accurate comparison of the services and products on offer so they can use their own judgement on which to buy.
Question 3: What priorities should the FSA set for its consumer education work?
Given that resources will limit the groups you can target, we would suggest putting the emphasis on the people most likely to be affected by confusing information.
Our experience shows that it is usually the most vulnerable who have the least information and are less likely to shop around for the best deal.
These groups include borrowers (including those taking out loans and getting credit), short-term savers, such as those using the new Individual Savings Accounts, and people making plans for a second pension.
The most important aim is to allow everyone to make an informed choice, which means putting the emphasis on the industry to provide accurate, clear and comparable information, rather than on the individual to decode the jargon.
Question 4: How much should the FSA seek to achieve in collaboration with the industry and how much should be undertaken independently or with other partners?
We can offer 20 year's of experience and knowledge of how ordinary people understand financial information. Our editors have the knowledge and ability to redraft documents in language that is not only true to the original sense, but also understandable to the intended audience.
As well as rewriting thousands of documents, we work on the design and layout of documents to make sure they are crystal-clear. Our Crystal Mark is the only widely recognised sign that a document that can be read, understood and acted on the first time it is read.
We also have a lot of experience of testing documents on ordinary people, and know this is the only way of getting a document right. Although we charge for many of our training and editing services, we use all the profits to campaign for plain English.
As we are both willing and qualified to offer you our help and advice, any 'consumer education strategy' needs to involve us for it to be complete.
Question 5: What are your views on the short-term actions set out in 4.3 to 4.11?
Town meetings, Millennium-Dome displays and websites may satisfy trends and fashion, they will be cases of style over substance until the financial industry itself is clear on consumer information.
You cannot promote the concept of clear information until banks, lenders and pension providers can establish a common ground. There is no point trying to educate workers on pension terms when every firm has its own definition of basic phrases like 'actuary'.
Although all the short-term actions will benefit consumers, many of them involve raising the profile of financial literacy rather than tackling financial literature.
Question 6: What are your views on the possible new initiatives set out in 4.12 to 4.20? Have you any further suggestions.
Presenting comparable information and improving the clarity of information are the two most important tasks we face.
We believe it should be compulsory for finance firms to provide clear information. In the United States, 44 states have laws demanding insurance policies are written in plain language. The emphasis of the proposed initiatives seems to be on you demystifying the information rather than the firms making it clear to begin with.
If you do not have this power, you should strongly encourage the finance industry to give clear and comparable information. This could involve a voluntary agreement committing members to:
- Use language that the audience can understand. (Documents should be tested on ordinary people before they are used.)
- Use an agreed standard definition for various important terms, with a standard glossary used by every member firm. This glossary should be included in every document.
- Agree a standard system for comparing numerical information, preferably one that uses pounds and pence rather than percentages and proportions.
- Explain any part of their literature to a customer free of charge, and redraft terms that repeatedly cause problems. (Our experience shows that producing clear information to begin with will heavily reduce the costs of such queries, and of putting right mistakes caused by confusion.)
Question 7: What priority, and what timescale, would you wish to see for those initiatives which you support?
If a bank started writing letters to its customers in Greek, we would not attempt to solve the problem by teaching everyone how to read Greek. Similarly, the emphasis must be on the finance industry to provide clear information in the first place, rather than having the consumer battle through the gobbledygook.
The consumer's responsibility is to make the correct decision for their circumstances, but they should be able to do this with all the necessary information at their fingertips. Whatever you do to present financial information to the public, you can only work with the information the industry provides.
For this reason, encouraging, persuading or forcing the industry to give customers a fighting chance must be the first priority. However worthy the other proposals are, they do not tackle the heart of the problem.
Trying to educate consumers to understand financial information without first making that information clear and comparable would be like using a telescope to look through a dirty window rather than cleaning the window.
Annex 2: Extract from Office of Fair Trading Discussion Paper
While we applaud the OFT's aim of a fair comparison without complex percentages in this ABC system, we are concerned that it is a case of unnecessary complication to get a simple product.
On their own, the ratings 'A+' to 'C-' do little to inform the consumer about a product. But when the consumer tries to work out exactly what the rating means, they are faced with:
'Standard deviations reflect how closely returns are grouped. They are calculated by squaring the difference between each return and mean, finding the sum of such square, dividing that sum by the number of returns in the survey, and taking the square root of the result after dividing to give the standard deviation.'
Presumably the consumer will than take away the number he first thought of and add his age!
Our experience shows that when people are making financial decisions, it is best if they have terms that have a real meaning - in other words, pounds and pence. Although we realise that, as the saying goes, 'past results are not necessarily a prediction of future performance', we believe the most effective system would look something like this (example only).
'Had you invested £1000 five years ago with each of the following firms, it would now be worth the following amount.
- Joe Bloggs Savings Plan £1250
- Henry Smith Endowments £1180
- Bill Jones Unit Trust £785'
Many analysts already use a consistent growth rate for each firm to show the effects of the various charges. This could easily be used in an easily understandable style such as the following examples.
'If you now invest £1000 with each of the following firms, and the fund grows by 2.8% a year, in 2003 it will be worth:
- Bill Johnson Pensions £1187
- Monkey savings £1098
- Barry's Xmas Club £1153'
Although those in the finance industry will be better qualified to decide the precise details of such a system, we firmly believe that any comparison of products needs to give a fair and accurate set of figures in terms that ordinary people can understand.