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More to Disclosure

In dealing with many professional service providers, an increasingly pervasive part of the experience is sourced by some degree of official disclosure.

As noted in an article in the year end version of The Insurance & Investment Journal (published in Montreal), financial industry disclosure intends to “…help investors take the first step in understanding the products they buy and compensation paid to advisors”.

From past personal experience in the business, I can attest there has been some form of disclosure, my initial exposure via fund prospectuses, in place well before the new century.  However, the technological revolution, which has made access to almost any type of information dramatically easier, has joined with the security watchdog evolution leading to clients facing elaborate explanations combining verbal and written communiqué.

The article relates how increasing anecdotal evidence is showing the extra information is being perceived by many clients as an extra burden.  Research has shown that often clients want only “…enough information to make a decision and be comfortable with that decision – and that’s all they want”.  The next most stated concerns were how much would they receive for their investment and whether it would be safe.  More analytical data appeared nowhere in the top of the list.

It’s important to understand that investment companies are not providing such a scope of additional information by their conscious decision; industry regulations require them to release such data each year.

According to the article, even if a potential conflict of interest is disclosed by the advisor, chances are a client may feel pressured internally (because of not wanting to signal distrust) to go along with the advisor’s advice.  From examples like this, the interpretation is that the overall implications of increased disclosure can include unintended consequences.  Advisors would do well to use plainer terms, with information delivered at ‘teachable moments’, in order to ensure enhanced financial literacy on behalf of the client.  It’s also observed that many people overestimate their own knowledge, and will equate understanding with details which sound good.

At least in certain professions such as financial consulting there are opportunities to plan to some degree timing and place for providing disclosure information, as opposed to, for example, receiving it while a patient in a medical office.

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