Tag Archives: Disclosure documents

Clear, concise and effective: what ASIC says about disclosure documents

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It’s the law. Many types of disclosure documents – prospectuses, financial services guides, statements of advice and the like – must be written in a way that is clear, concise and effective.

Too often disclosure documents are complete and accurate, but they don’t communicate well. They don’t help readers fully understand the issues so they can make an informed investment decision.

But what does it mean to be clear, concise and effective? ASIC’s recent update (Nov 16) to Regulatory Guide RG 228 ‘Prospectuses: Effective disclosure for retail investors’ unpacks this phrase. In short it recommends using the principles of plain language when writing a prospectus and other disclosure documents.

The guidance ASIC provides comes as no surprise to Plain Language Professionals – we’ve been advocating using plain language and a deliberate focus on the needs of users in all sorts of documents for years. It’s the best way to get your message across.

Ignoring these guidelines, just writing the way disclosure documents have always been written, is risky. The consequences of a disclosure document being found to not be clear, concise and effective could be very costly. RG 228 provides some ways to judge a disclosure document, but ASIC says the guide will not be used as a simple checklist.

The foundational principle of plain language is to focus on the user or reader of the document. RG 228 says that when writing a prospectus to focus on your readers’ need to understand the content and use the information to make an informed decision.

The guide lists a number of writing techniques that help; things like using the active voice, talking directly to the reader, using verbs rather than nouns, avoiding jargon, writing with short sentences.

Plain Language Professionals have been using these ideas for decades, but this writing style is rare in disclosure documents. I guess that’s not surprising: most disclosure documents are written by people with financial and legal expertise rather than by expert communicators.

Writing in plain language is no longer a ‘nice to have’; it’s essential. See plainlanguage.site for a list of Plain Language Professionals who can help write clear, concise and effective disclosure documents.

Financial disclosure – being clear, concise and effective

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financial disclosureThe law says that financial disclosure documents must be worded and presented in a clear, concise and effective manner. This is a requirement of the Corporations Act 2001:

  • Financial Services Guides – Sect 942A (6a)
  • Product Disclosure Statements – Sect 1013C (3)
  • Statements of Advice – Sect 947C (6)

My observation is that many disclosure documents do not meet the standard of ‘clear, concise and effective’. Writers seem to focus on complying with other aspects of the law – having  the correct content. They assume that being complete and accurate is enough. That’s a very risky position to take, and it may break the law.

These standards of ‘clear, concise and effective’ are tough to meet because they can only be judged with reference to the reader, or user, of the document.

An effective document is one that achieves purpose. The general purpose of disclosure documents, as described in the law, is to help people make a decision about whether to buy financial services or products, or follow advice. To be effective, disclosure documents must work to achieve that purpose. That means you must know something about your readers and their decision making process, and use that knowledge to inform your writing. It may mean including additional content not required by the law, but that is helpful for your readers.

Being concise means not including unnecessary material, not saying the same thing multiple times (removing redundancy) and not using more words than is needed to express an idea. It means you should not blindly use a boiler-plate template that includes material that is irrelevant to some readers.

Being clear is a matter of

  1. organising content in a way that makes sense to your readers
  2. using words, sentence structure and a style that can be understood easily.

In short, all financial disclosure documents must be written using the principles of plain language, with a deliberate focus on the needs of users.

Reckless writing

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reckless

Reckless writing is when writers just float a document ‘out there’ without any serious thought about their readers. Like reckless driving, it’s just doing what you think is OK without properly considering the consequences.

Even if your document is complete and accurate, not considering your readers is reckless. Not considering how they will understand and what they will do as a result of reading is both arrogant and careless. Not taking the time to structure your document in a way that makes sense, and not writing plainly in language readers can understand, is irresponsible.

It is never enough just to write what you think is good enough – the reader is the sole judge of effective communication.

Unfortunately, reckless writing is common. It’s unusual for authors to carefully articulate the purpose of the document and the needs of their users before they start writing. Proper user (reader) testing is rare. And document reviews don’t always fix the problem – they can end up being group recklessness.

But reckless writing is very risky behaviour for government agencies and businesses. It’s especially risky if you write documents that people use when making decisions.

Sometimes the risk is that the document is ignored. In that case, all that has been lost is

  • research effort in defining the content
  • writing effort, as authors struggle to find words to convey ideas
  • design effort when graphic elements are sourced to supplement the words
  • review effort as the document passes through various levels of approval
  • publishing cost, perhaps printing or placing it online
  • archival and governance effort to keep proper records of the document
  • the opportunity – the document was intended to achieve some outcome but didn’t.

Other times the risk is that users (readers) misunderstand the document and take an action that they shouldn’t, or that they would not have if they had understood it properly. When that happens, the cost to you and to them can be huge and may potentially involve legal action.

Consider your users when you write and what they need to do with the information. Test to make sure you are communicating effectively.