Few investors can escape being confused by jargon in financial documents, annual reports, and prospectuses. These documents are usually rife with legal and financial terminology, but they also contain important information about the investment product or the company. Are the very reports and documents that are meant to aid investors, hindering them? The Securities and Exchange Commission (SEC) thinks so.
On October 1, 1998, the SEC issued the Plain English Handbook, requiring public corporations and investment management companies to write reports, prospectuses, and documents in clear, easy to understand English. According to Plainlanguage.gov, “Plain Language is communication your audience can understand the first time they read or hear it.”
The aim of the SEC is to improve quality, presentation, and structure of financial filings. But to the chagrin of investors, this action is not enough. According to Kenneth Long, vice president of Heritage Investors Management Corporation, “many clients need a little extra help when deciphering information. We have to walk people through it and do a lot of hand holding but they eventually get it.”
The actions of the SEC to improve readability in documents conflicts with other rules and regulations set forth by the government agency. According to Long, “we are only able to do so much. There are industry and regulatory rules on how reports are supposed to be presented.”
In his first speech since becoming the new SEC chairman, Chris Cox said he would put investors first and continue the plain language initiatives launched by former SEC chairman Arthur Levitt. “Chairman Levitt’s vision is still dead-on.”
From the SEC’s point of view, the agency is making a concerted effort. According to an October 2004 speech, the SEC’s chief accountant, Donald T. Nicolaisen, said it is his job to “ensure that these millions of investors can make investment decisions on the basis of timely, relevant, reliable and unbiased information that is presented in an understandable manner.”
Plain Language advocates applaud the SEC involvement in the Plain Language campaign but argue that investors need even more transparency in financial documents.
Dr. Susan Kleimann, executive director of the Center for Plain Language and President of Kleimann Communication Group argues that, “Companies who use plain language get it — consumers want communications that don’t require translation. They want to trust that the companies are honest and not burying the facts in bureaucratic legalese. Using plain language in financial documents builds trust and a robust customer base.”
Once investors are able to fully and easily understand what they are investing in, then they can trust the process and in turn, invest more of their money.
by: Dr. Susan Kleimann and Kenneth Long