According to a recent report, access to financial products can confuse just about anyone.
The report highlights everyone from banks to insurers, from the taxman to estate agents. Financial providers are using language that is at best difficult to understand and at worst, highly confusing.
Should financial providers do more to ensure customers know exactly what they’re signing up to?
The research conducted by insurer Aviva asked a question. Do financial providers deliberately try to baffle customers by using confusing language?
It found that two in five (41%) people, in 2017, ignored information they received from financial providers. Because they do not understand the language used.
This is equivalent to 21 million people in the UK. With 13% of these, 2.7 million, saying they have missed important changes to their financial accounts because they have ignored paperwork.
So, is this the fault of individuals or should financial providers do more to help customers understand their products?
A spokesperson for the Plain English Campaign, says many financial organisations use too much jargon.
Lee Monks, says:
“Banks could do more to make their information clearer in general. The difficulty is turning that impenetrable stuff into something everyone can understand and engage with. I think the main problem is banks think ‘we understand it, so everyone does’.
Patrick Connolly, financial planner at adviser firm Chase de Vere, believes this is an industry-wide problem.
“There is a real danger that much of the information provided by financial institutions can leave consumers feeling confused. And this means they are less likely to be engaged with their finances.”
“Part of the problem is the way that information is presented and the language which is used. Another key issue is that the level of financial literacy and competence in the UK is too low. Many people don’t understand the basics of personal finance.”
Obviously, it is best for consumers to try and understand what they are signing up to. Reading the terms and conditions makes sense. However, the reality is that many of us just trust what their financial providers tell them. Often not really understanding the terms being used. There are concerns that financial providers are wilfully keeping their customers in the dark to sell them products they don’t need.
We all know about past mis-selling scandals, such as Personal Protection Insurance (PPI)
Patrick Connolly says some firms are still not presenting facts to customers clearly enough.
“In the past, some financial companies may have had a vested interest in their customers not understanding what was happening with their money and, more pertinently, how much they were paying in fees and commissions.”
“This still happens today and it can sometimes be very difficult for consumers to fully understand how much they are paying and what they are getting in return. This is particularly the case where companies are selling their own investment or other products. Which are often not the most competitive on the market.”
Mr. Monks says many of the complaints received by the Plain English Campaign in the past suggested providers have tried to mislead customers. But he argues that most firms now play by the rules.
“The mis-selling of all kinds of banking products a few years ago certainly came across as a case of wilful deceit. That was the perception among those who contacted us.”
“We know there may be occasions when banks are quite happy to leave their customers in the dark, but in the main, it’s surely just a misapprehension of what can be understood by non-experts.”
Older people can be particularly vulnerable.
Jane Vass, head of public policy at Age UK, says the move from face-to-face service towards the internet has disenfranchised many older people.
“Most of us find financial jargon baffling from time to time, and older people are like any other consumers in this respect.”
“However, it all gets even more difficult when you have to get to grips with a new financial product or system. Such as contactless cards. We know that this continual change can be a particular problem for older people, who are used to managing their finances in a certain way. And many of whom are not confident internet users.”
People of all ages can find financial products confusing but older people can be particularly vulnerable to financial jargon.
For instance, Pensions. This is a particular area of concern. People can often end up making life-changing financial decisions when they don’t understand their options.
Aviva’s research shows that while 43% of adults know that Lima is the capital of Peru and 26% can fully explain football’s offside rule. Just 22% could describe what a defined contribution pension is.
The pensions industry is one of the worst offenders when it comes to using excessive jargon.
Both Mr. Monks and Mrs. Vass agree that the pensions industry is one of the worst offenders when it comes to using excessive jargon.
“The pensions industry is riddled with difficult-to-understand language and product names that most people haven’t heard of, made worse by complex decision-making processes,” says Mrs. Vass.
Mr. Monks says pensions companies should invest in better training for their frontline staff.
“One of the key issues of late has been the problems people have had trying to understand their pension options and permutations. Staff need plain English training,” he says.
The Association of British Insurers (ABI) trade body has introduced voluntary codes of practice to try and improve the quality of communication in the insurance industry.
Mrs. Vass would like similar schemes to be launched in other areas of financial services.
“This is something we fully support and urge the Financial Conduct Authority (FCA) and government to do more to extend its usage.”
“We also think that it is really important for firms to learn from their customers by thoroughly testing their communications with consumers.”
Mr. Connolly says that the FCA has already made companies present their information more clearly. But this will always be balanced against the need to give the customer all the information they are legally required to.
“There is a difficult balancing act in information being presented in a clear and transparent way. While at the same time including all of the necessary details such as any relevant risk warnings.”
“The result is that financial companies sometimes have no choice but to include certain information and language which, while relevant, might not always be easy for people to understand.”
“People struggling with debt should seek help as early as possible.”
This is good advice from a leading debt charity. Taking the first step is always difficult but it is vital. There is help out there and solutions that can help, but you need to take the first step towards getting good debt advice. We have listened to the stories of 1000s of people and are constantly striving to help them. It is our mission to explore all their options and find a solution to help them become debt free. And what’s more, we have helped 1000s to achieve their goals since 2007, over 12 years of dedicated advice.