The Financial Conduct Authority (FCA) has expressed strong criticism of investment firms, platforms, and wealth managers for using overly complex and jargon-filled language in their pre-sale investment disclosure documents. A review of 132 such documents revealed that a mere 6% were written in plain English, with all documents being more complex than GCSE level. This lack of clarity is creating significant confusion and a lack of understanding among consumers regarding the true costs and risks associated with their investments.
The FCA highlighted that current practices make it difficult for consumers to understand investment costs and their impact on returns. For example, 30% of non-advised platform users reported not knowing how much they were charged for investing. To address this, the FCA has published proposals (Consultation Paper CP26/24) to simplify rules for communicating all investment-related costs, including product, distribution, and advice fees. These proposals align with the Consumer Composite Investments (CCI) rules, finalized last year, which firms must implement by June of next year, requiring clearer explanations of investments before purchase.
The regulatory body aims to foster a stronger investment culture by enhancing consumer confidence. Lucy Castledine, FCA director of consumer investments, emphasized the goal of empowering consumers with clearer, more engaging information to make informed decisions. The proposals are intended to allow firms greater freedom to innovate in their communications while ensuring a consistent framework. Industry reaction has been largely positive, with experts like Rob Hillock from Broadstone acknowledging that current disclosures are excessively complex.
The FCA's consultation period for these proposals runs until August 21st, 2026. This initiative is part of a broader effort to improve transparency, align with Consumer Duty expectations, and address issues like disclosure of interest on cash and "double-dipping." The regulator will continue to collaborate with the industry to embed the CCI rules, ultimately providing consumers with the necessary clear information for better investment decisions. Improved readability is expected to help consumers compare products more easily and invest with greater confidence, supporting a more robust and resilient consumer investment market.
