The Investment Association (IA) has published a guide for its member firms to help them communicate with end-investors, following criticism and new requirements imposed by the Financial Conduct Authority (FCA).
The trade body's latest paper, published on Wednesday (20 February), provides a series of recommendations to address communications failings and provide investors with greater clarity about funds.
It sees the IA list 35 key words and phrases it said some customers struggle with and suggestions how to make these clearer, while encouraging fund managers to use terms consistently across their communications.
For example, the paper recommends swapping the terms ‘fixed income' and ‘equities', to ‘bonds' and ‘shares' respectively, "which are [terms] better understood by savers", according to the IA.
For more complex concepts, such as risk and time horizons, the IA said asset managers should look "to provide more detailed explanations".
The publication follows the June 2017 Asset Management Market Study Final Report, which saw the FCA slam the asset management sector for a number of failings, including poor communication with investors with regard to fund performance, charges, risk and other key information.
This resulted in the FCA publishing its own guidance around fund objectives and imposing rules for the use and reporting of benchmarks.
In response, the IA said it would help to promote the use of consistent terminology in communications from fund managers.
Part one of the document examines a number of key regulatory disclosure components, with the IA outlining its interpretation of the relevant legislative provisions, while part two aims to reflect the findings from consumer research.
The research, conducted alongside The Wisdom Council, reflected the FCA's findings in that it revealed investors had "difficulty understanding a range of commonly-used terms", with around half of savers able to correctly explain income, return, growth and yield, according to the IA.
Meanwhile, despite half of savers citing risk as the most important factor when selecting a fund, the IA's found the link between risk and reward was not well understood, with risk being perceived negatively.
"There were also wide discrepancies between what savers typically regarded as short, medium and long-term time horizons for holding a fund," the IA added.
Elsewhere, investors were found to prefer a written explanation of how risk affects their fund rather than simplistic rankings alone, and, when describing time horizons, investors preferred a reference to a specific number of years.
Commenting on the guidance, CEO of the IA Chris Cummings (pictured) said: "With 75% 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.
"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."