Overuse of investment jargon will ultimately deter investors from making important financial decisions. So claims investment group AXA Wealth, which has just published new research into the impact of complex terminology on consumers’ appetite to invest.
Of particular concern is the launch of ‘clean share classes’, where consumers, financial advisers and even fund managers agree that there is a lack of clarity around the benefits of new share classes and it is putting many consumers off investing. Clean share classes are a positive development for consumers, according to AXA Wealth. But it believes their benefits are being obscured by the increasing amount of industry jargon associated with investments. According to the research, 96 per cent of consumers say they have not heard of the term clean share class.
More than eight in 10 financial advisers (81 per cent) agreed with the statement that “there is too much jargon in the investment market”, with more than half of consumers (56 per cent) saying that “it is hard to understand the jargon used in the investment market without the help of an expert”. Indeed, two thirds of financial advisers (66 per cent) also agreed with this sentiment.
Furthermore, there is evidence that the lack of understanding of clean share classes actively hinders would-be investors:
- Only a third of advisers (33 per cent) and a fifth of consumers (22 per cent) that expressed a view believe that share classes are clear
- Almost half of advisers (46 per cent) agreed with the statement that “multiple share classes impede consumers”, with only one in 10 (11 per cent) disagreeing
- A third of consumers who expressed a view (31 per cent) agreed with this statement
- Only one in five financial advisers (20 per cent) believed that “multiple share classes benefit consumers”
- Fourteen per cent of consumers who expressed a view and 13 per cent of financial advisers said that they or their clients had been put off investing due to a lack of understanding around these new share classes.
Amongst the senior investment management professionals polled there was a consensus opinion that the development of new share classes would reap benefits for investors in the medium term, and a unanimous view that there is an urgent need for the industry to make it easier to invest.
Mike Kellard, CEO, AXA Wealth, said: “We are very supportive of the principles underpinning clean share classes but problems arise when we move this relatively simple consumer solution into a seemingly impenetrable maze of confusing investment terminologies. As a consequence potential investors may be deterred from investing by a lack of understanding.
“The result may be a further flight to cash among investors that will simply exacerbate the current savings gap. Despite being seen as low risk, a recent study showed how cash was the single worst asset class over 10 years (from 2003-2012). That is not to say people should have no exposure to cash or other low risk savings vehicles. They should. On the other hand, even though volatility in the equity markets over the same period has felt at times like being on the Space Mountain ride at Disneyworld in the dark. But according to JP Morgan*, if you had held a diversified investment portfolio containing equities, bonds and cash, you are likely to have had double digit returns in seven out of the 10 years, a 8.3% return in one of the remaining years, and a 23.2% and 1.4% fall in the other two. Not bad during what many called a ‘lost decade’ for stock market performance.
“We therefore need to work hard with advisers to ensure that consumers understand this investment message. And understand the greater transparency clean share classes provide. This is part of the great strides advisers have made to make their charges clearer to consumers. This should not be lost in further confusion about charges on investments.”
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