Why 'transparency' is not enough

Andy Brown, investment director at Prudential Portfolio Management Group, on why transparency is not a cure-all for the industry's woes.

Transparency is generally perceived as a “good thing” – ask any financial services professional and they will almost certainly nod in agreement. However, try asking them for a clear definition of the word and you may receive slightly more varied responses.

While not wishing to provoke a profound debate on the subtleties of one word, it is a subject that remains high on the agenda of regulators and financial institutions alike.

A quick piece of online research will show that, in terms of finance, the term is associated with “openness, communication and accountability” – yet while these are all positive attributes, isn’t the Holy Grail of transparency a bit more than just providing a full set of accounts? And if so, what can advisers do?

Current regulation

Looking at current regulation, we can see a plethora of directives and small pieces of legislation aimed at giving consumers insight into their investment choices. TCF, Principles and Practices of Financial Management and UCITS III are all designed to shine a spotlight respectively on customer care, with-profits and unit linked funds and collective funds.

In terms of availability of information, it is certainly within reach of consumers and IFAs. However, is it enough to just provide the details without a full explanation or getting a full sense of the level of comprehension from your target market?

Someone once told me that complicated is relative. While not always true, the provision of information is only as helpful as the person using it. While transparency is a fantastic opportunity to allow consumers to see what goes on, they also need to fully comprehend what they are reading.

Looking at the question of transparency in these terms, the role of the IFA becomes central in ensuring that details are not “lost in translation”. While it is important that products are as clearly laid out as possible, it is also essential that client expectations are, first and foremost, addressed in terms of careful explanation. What can appear simple on paper may not often lead to a simple or, indeed, transparent outcome.