Lemonade from Legislative Lemons

New ‘plain language’ rules for Form ADV give advisers a chance to stand out

By Deborah S. Bosley and Libby Dubick

Despite the government’s best efforts, new regulations sometimes end up serving no
one. The regulated parties see their costs go up, yet the public remains no wiser or
better-protected.

Investment advisers fear that this will be the case with the Securities and Exchange
Commission’s unanimous decision to change requirements for Part 2 of the Form ADV
— the document that registered investment advisers must make available to clients,
explaining their qualifications, investment strategies and practices.

The new rules require that financial advisers convert their brochures from a series of
multiple-choice and fill-in-the-blank questions to narratives that disclose more-precise
information about their practices.

But it isn’t just about new formatting. The revamped document must also use “plain
language” that the average investor can understand to describe the adviser’s business,
including investment methodology and risks, conflicts of interest on fee structures,
compensation, business activities and disciplinary history. 2

Registered investment advisers already are grousing about government intervention, the
added expenses and the extra time that they will need to spend on compliance.
But the new rules offer advisers a marketing opportunity that shouldn’t be squandered.
Meeting the requirements provides advisers a chance to build their relationships with
clients and prospects, and dispel the public’s impression that the financial services
industry provides more double talk than straight talk.

Advisers tend to fare better than financial services corporations when it comes to trust.
However, according to a recent study of 815 Americans over 50 conducted by AARP:
• 92% favor requiring investment companies to disclose the costs, risks and benefits of
all the financial products they market and sell, using plain language and a user-friendly
format.
• 93% favor requiring companies that manage 401(k) retirement plans to explain their
fees clearly on participants’ annual statements.
• 93% favor allowing consumers to check an investment adviser’s record for violations or
professional misconduct.

The Edelman 2010 U.S. Financial Services Trust Barometer, presented at the Economic
Summit in Davos, Switzerland, also emphasized the importance of trust and
transparency. The majority of U.S. investor respondents — 83% — indicated that
“transparent and honest practices” are twice as important as financial returns, and said
that the broker/adviser is their most trusted source to provide accurate information on
investments, investing or the markets. One of the survey’s main conclusions: “Commit to
transparency in communications and to excellence in customer service.”
Transparency in communications is in and of itself an accelerator of customer service.
Increased trust means more clients and, subsequently, higher profits. And evidence
shows that the use of plain language in financial documents increases trust and
corporate reputations.3
How can RIAs create documents that will meet the standard for plain language? It is
simpler than you think.
“The SEC Handbook on Plain English” (1998) sets forth the writing guidelines. Here are
some key points:

• Use short sentences, concrete words and an active voice.
• Avoid legal j argon or highly technical business terms.
• Include examples, tables and bulleted lists.
• Make material easy to reference since readers generally read the information that is
most relevant to them rather than reading from the beginning to the end. Brochures also
should be tested on members of the intended audience. Usability testing isn’t expensive
or time-consuming but can yield significant results for revision.

Financial services are already getting on board with the plain-language initiative. Bank of
America Corp. has launched a “clarity commitment” campaign to promote the fact that its
credit card statements and mortgage documents are now written (at least in part) in plain
language.

Advisers who use plain language show respect for their clients. Most people select their
broker through the recommendations of others.

What better recommendation would one friend give another than, “My adviser respects
me enough to make sure I understand my investments and our relationship”?
Deborah S. Bosley is an associate professor of English at the University of North
Carolina at Charlotte. Libby Dubick is president of Dubick & Associates Ltd., a marketing
consulting firm for advisers and financial services firms.

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