Helen Nugent

It’s time industry got its act togther on financial jargon

‘I don’t get excited when I hear EITC. Do you?’

This is a line from the late, lamented West Wing. The acronym EITC refers to Earned Income Tax Credit, a refundable tax credit for low to moderate-income working people. One of the characters, Charlie, is trying to fight for it, only to be told by Annabeth that this won’t be easy because it doesn’t have a catchy name like ‘Marriage Penalty’ or ‘Death Tax’.

She’s right. Who would understand EITC, let alone get behind it? It’s the same on this side of the pond. Financial phrases like AER (Annual Equivalent Rate), DB (Defined Benefit) and OEICs (Open-Ended Investment Companies) don’t exactly roll off the tongue, let alone lend themselves to easy interpretation.

And the more opaque something sounds, the harder it is to sell, despite the fact that many financial products and services benefit savers and investors.

Thankfully, the City watchdog agrees that, in some cases, too much incomprehensible jargon has been used by investment companies and advisers when communicating with their customers. A Financial Conduct Authority (FCA) market study into the asset management industry, published last month, concluded that: ‘Documents tended to use jargon and abbreviations without clear explanations. Documents tended to make no attempt to make it easy and accessible for investors including lay trustees to read and understand.’

In a wide-ranging report, which also found that there is weak price competition in a number of areas of the asset management industry, and investment consultants on average are not able to identify managers who offer better returns to investors, the FCA highlighted an area that has long needed improvement.

Following the watchdog’s study, Saga Investment Services surveyed more than 11,500 over 50s on the issue of language. The company discovered that while many people are financially savvy, some struggle to understand even the most commonly used jargon employed in a range of investment terminology.

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