the watch of time

The financial and insurance service industries in Canada is being regulated toward fuller disclosure to clients about both costs and performance of mutual fund investments and accounts content.  In turn, the companies affected arestudying and materializing ways in which to provide ‘clear and transparent information’ while encouraging ‘more meaningful discussions between advisors and clients’.

An article in the March edition of The Insurance & Investment Journal includes some revealing findings about how investment consumers respond to different options in describing the disclosure issue.  They participated in a study conducted by Invesco Canada (which includes Trimark Investments), subsidiary of Invesco Ltd., a global investment management firm.

A branch of Invesco Canada, Invesco Consulting, adapted research from an American public relations firm which ‘studies the effect that wording can have on a target audience’.   Two of the latter’s clients have been the Commissioners of the NHL and the NFL.  The firm was asked by Invesco to apply its expertise in the study of financial language to terms Canadian mutual fund representatives use in discussing investments, and particularly fund fees disclosure.

In a 2014 report, a sample of 400 Canadian investors were asked to react to phrasing which came up in prior interviews with advisors.  The sample participants evaluated the terms via positive or negative reactions.  After completing the study with English-speaking Canadians, it was also conducted for francophone advisors in Quebec.  Here are the major findings:

• Quebec investors dislike acronyms, such as ETFs for exchange traded funds; the phrase ‘balanced portfolio’ was more appreciated by francophones, whereas ‘managed portfolio’ was more popular with anglophones
• 2/3 of participants stated they want their advisors to contact them A.S.A.P. about the impact of the disclosure rule changes
• Specifically concerning four terms connected with disclosure, the terms ‘fees’ and ‘commissions’ had the most negative connotations to investors, the former associated with ‘hidden fees’ and the latter with a win/lose scenario; in fact, 44% of participants indicated unwillingness to pay a ‘fee’
• The two more palliative terms were ‘expenses’ and ‘costs’, the latter only a turn-off for 8% of respondents; investors believe that ‘costs’ “includes everything and there will be no other fees”
• Insofar as advisor value added expressions, ‘increasing earnings’ was appreciated by 45% of participants, but only 4% approved ‘beating the market’
• Concerning retirement, approximately 70% liked ‘security’ but only about 30% were enamoured with ‘financial freedom’, the latter an expression associated with unrealistic expectations
• 75% of investors prefer the idea of portfolios which keep their promises, as opposed to the image of new and improved products
• With respect to qualitative terms about advice, ‘realistic’ (at 57%) topped ‘prudent’, ‘direct’, or ‘pragmatic’; investors also are fond of the word ‘balanced’
• In talking about the advisor’s role, words or expressions of combative or negative nature should be avoided in favour of plausible, credible language not spread on too thickly by advisors; phrasing like ‘guiding me in investment decisions’ resonates well

Such finely tuned guidelines would have been helpful to those of us still in the business a few years ago.