The Only Disclosure that Matters is What We Actually Understand
Regulatory bodies are well intentioned when they advocate for “transparency” in financial services but the reality of what they unleash in the form of “disclosure” rarely fosters comprehension and understanding. Page after page of fine print—for a brokerage account in the US typically several hundred pages of agreements and disclosures—clearly does not meet the objective. Dozens of pages in a credit card agreement doesn’t work either.
We cannot edit our way to a solution. Even a radically shortened, plain language version of these documents is unlikely to ensure that an investor understands the risks, rewards and value. Giving someone a library card does not ensure literacy.
Governmental agencies find themselves at cross-purposes; while one agency requires more and more disclosure, another, such as the CFPB, slashes away at the very documents created by banks and investment firms to comply with regulations.
Asking consumers and investors what they want to know is pointless since risks and fee structures have become so complex that they don’t know what they need to know. We need regulators to help consumers by calling attention to the most critical content. Complex concepts, ever-changing products and new technology-based services require that an expert with my interests at heart, guide me, as a “smart friend” would, to the items and topics that I should consider.
Burying risky exposure to derivatives on page 35 isn’t disclosure. It is merely a deflective shield for regulators and financial institutions to brandish when an economic implosion occurs. As long as regulators cling to the notion that “transparency” is a significant accomplishment —no matter how complicated, voluminous and bureaucratic—they will meet resistance, skepticism and derision. Transparency alone does not ensure simplicity; it merely makes evident what lies beneath the surface. What people yearn for is an “empathetic connection” facilitated by brevity, clarity and reality.
The only disclosure that matters is what consumers actually absorb and understand. Brevity is critical—beyond the Home Page of a website or page one of a document lies a cognitive wasteland. Clarity means telling people what they need to know without weaseling, sugarcoating or distracting. Reality in the digital age means using the communications tools that people have, like and use: mobile, email, social media and real people, instead of avatars, when they want human contact.
How illogical is it to ask in-house lawyers to be the creative wellspring for innovative disclosure? Turning the tables—letting customer experience and ethnographic research drive regulatory disclosure with lawyers as passengers—could be the solution. The forces that put in place the current regulatory blanket are not the ones to create effective and innovative disclosure.
Disclosure should mean:
- Presenting actionable information at the right time
- Distilling content to achieve brevity using a “need to know” rather than “nice to know” rubric
- Expressing concepts in everyday language
- Explaining real-world implications
- Offering examples
- Using inviting design
Regulators should consider that disclosure must be experienced, not sold. Consumers who feel confident and informed will conclude that regulators and companies have been forthright, fair and trustworthy.
Irene Etzkorn is Chief Clarity Officer at Siegelvision and has 35 years of experience achieving breakthrough simplicity for a myriad of industries. She is also co-author of the book, Simple: Conquering the Crisis of Complexity.