In words dear to journalists” hearts – and investors – the FCA wants to cut complex language and simplify the way investments are explained to the public. As ever, however, there are criticisms. One commentator said that transparency is not the same as clarity when relatively modest sums are involved.
The Financial
Conduct Authority proposes to simplify how platforms,
advisors and wealth managers communicate the costs of investing,
while reminding firms to explain investments in plain English.
The move, which will bring all investment cost disclosures
into line with previous investment product disclosure reforms,
will create a more consistent framework for firms to give
customers clearer, more useful information, the UK regulator said
in a statement yesterday.
The FCA said consumers currently struggle to understand
investment costs and how they erode returns. For example, it said
that 30 per cent of non-advised platform users did not know how
much they were charged for investing.
To help give consumers a clear and balanced understanding of
costs and charges, the FCA is now consulting on simplified rules
for the way firms communicate all the costs involved in
investing, including products, distribution and advice, it said.
Under the proposals, distributors would present their own costs
alongside product costs consistent with the Consumer Composite
Investments (CCI) format when selling products, and account
regularly for the total cost of investing.
The proposals also cover firms’ disclosures to consumers when
they charge fees or pay interest on client cash.
“We want more consumers to feel confident investing by getting
clearer information in plain English on products and charges,”
Lucy Castledine, the FCA’s director of consumer investments,
said. “The changes will give firms more freedom to innovate and
communicate in ways that build trust and support informed
decisions to help consumers navigate their financial lives.”
Reactions
“Transaction costs need to be disclosed, which will disappoint
some industry players. However, these can be presented pre-sale
along with a note that these may vary and an illustration of what
they were in the previous year. I think this is a sensible
approach,” Holly Mackay, founder and CEO of Boring
Money, said in a note. (Boring Money is a
consumer-focused financial website.)
“The regulator has been clear that they want to see fee
illustrations in pounds as well as percentages, which I think is
really positive. They are also emphasising the need for more
personalised statements, requiring firms to show customers
post-sale the impact of fees on returns on an ongoing basis.
“The FCA uses the word ‘dynamic’ in several instances, and this
confirms that they want to see more personalised reporting for
consumers, which is pretty hard to do in the old-fashioned world
of PDFs. Without mandating the underlying technology, the
disclosure requirements are heavily leaning towards a more
digital, dynamic interface than many firms have today.
“I do have questions, however, about the materiality of some of
the proposed disclosures, which will add complexity to
disclosures. Transparency is not the same as clarity, and for an
investor with a few hundred pounds in cash, wading through
illustrations which show the specific cost impact of this is
arguably over the top,” she said. “Add to this the fact that
rates are not static numbers – and add the Treasury’s new 22 per
cent planned tax on this cash, which landed as this paper was
being prepped for print – and this could prove an expensive
distraction with little gain. It could feel sensible to apply
materiality parameters here, so this is only highlighted for
those with large sums or proportions in cash for whom this is a
matter of more than a few pounds and pence.”
Julia Sage-Bell, senior policy advisor at PIMFA, said: “We strongly
support the FCA’s ambition to enable firms to communicate
information in formats and through channels that best meet
consumer needs. Delivering effective consumer journeys under the
new regime will require careful design, testing and ongoing
refinement.
“We are particularly enthusiastic about the proposed flexibility
around the transitional period. Allowing firms to make use of the
full implementation window provides valuable time to design, test
and refine disclosure approaches, enabling them to focus on
presenting information in a way that is genuinely meaningful and
useful for consumers.
“Whilst the consultation rightly seeks to give firms greater
flexibility in how information is communicated, the proposed
disclosures still place significant responsibility on firms to
ensure consumers understand a complex and varied set of
information,” Sage-Bell added.
Timeframes
From June 2027, firms must follow the FCA’s CCI rules, which were
finalised in 2025. This means that they must change how they
explain investments to consumers before they buy.
To support firms making this change, today the FCA has also
published the results of its review of current pre-sale
investment disclosure documents, which will need to be updated as
firms embed the CCI rules. The review found that of 132 examined
for readability, only 6 per cent were written in plain English.
It also looked at these and a further 40 documents from
firms that both manufacture and distribute products to see
how easy they were to understand. All the documents were more
complex than GCSE level.
The FCA will continue to work with the industry to embed the CCI
rules and ensure that consumers have clear information to make
better-informed investment decisions.