Plain Language in Finance

The battle for clarity continues at the Securities and Exchange Commission. Just do a search for “plain English” on their website. You’ll get over 600 hits.

The SEC’s Chief Accountant, Donald T. Nicolaisen, made the case for clarity in financial documents: “With over half of all U.S. households investing in our markets directly or through retirement funds, my job is to help ensure that these millions of investors — young and old - can make investment decisions on the basis of timely, relevant, reliable and unbiased information that is presented in an understandable manner. I’ve spoken many times about the need for management to communicate in plain English with investors.”

The next column includes links to recent and past financial literacy initiatives to produce clear and helpful documents for investors.

Plain language at the Securities and Exchange Commission

The SEC proposed new forms to tell investors if their brokers are getting extra payments when they recommend investors buy mutual funds.

Advocates of plain English submitted plain-English prototypes of the SEC’s forms in two separate comment letters on April 12, 2004 and April 22, 2004.

The American Association of Retired Persons tested the SEC forms on hundreds of investors and found they could be greatly improved.

The SEC’s Chief Accountant, Donald T. Nicolaisen, made the case for clarity in financial documents.

In 1998, the SEC adopted a rule requiring the use of plain English in some financial documents such as prospectuses.

The SEC also published a guide, A Plain English Handbook: How to Create Clear SEC Disclosure Documents, to show securities lawyers and companies how to get rid of the legalese.

Securities and Exchange Commission Chairman Christopher Cox, as keynote speaker at the October 2007 Symposium entitled “Plain Language: Public Policy and Good Business”, discussed the need for plain language in promoting transparency in investor information.

Further reading

The Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (GLBA), requires financial institutions to provide their customers with notices of their privacy policies and practices. Soon after the Act went into effect in 2001, researchers reported that the privacy notices were too lengthy, dense, and complex. Most consumers neither read nor understand them. In response, six federal agencies that enforce the Act started a project to explore developing financial privacy notices that are easier for consumers to understand and use. This report presents the research-based rationale for a “prototype” privacy notice designed over the course of the Form Development Project and discusses the project’s methodology.

Read the Executive Summary.

Read the entire report (a 12MB file).