Wednesday 20 February 2019 12:01 am

Passive management and relative returns? Fund managers urged to scrap investment jargon

Fund managers have been urged to scrap jargon including absolute return, passive management, relative return and currency exposure by the industry body in order to help investors understand different products

A total of three quarters of savers struggle with technical phrases, according to research by the Investment Association which today has called for firms to simplify how they explain investment options. 

Fewer than half of savers were able to correctly explain the definitions of income, return, growth and yield, and the link between risk and reward was not well understood, research by the Investment Association (IA) showed.

Read more: Investment Association moots including ETFs in fund sectors

Fund managers were also advised that terms such as asset allocation, derivatives and hedging should be replaced with a description rather than the word itself in order to improve clarity. 

Investors showed good understanding of and familiarity with terms such as share, bond, unit, initial charge and annual management charge, the study found, and managers were encouraged to use the terms together with simple explanations.

Investment Association chief executive Chris Cummings said: “With 75 per cent of households saving into a pension or investment fund, we need to find a better way to communicate with our savers.

“Our industry needs to speak to savers in the language that they understand and the IA is leading a programme of change in this area.

Read more: Investment Association boosts board gender diversity with shake up

“Savers should be able to understand the objectives of their funds in clear and simple language, so that they can choose the products that best help them achieve their financial goals.

“Our guidance is designed to complement the current work of the FCA, and help fund managers achieve greater clarity in their communications.”