Uniform call for clarity on disclosure

Leading financial services industry figures involved in discussions regarding disclosure at the Australian Securities and Investments Commission (ASIC) Summer School have agreed disclosure practices must be plainer and easier to understand in order to be more effective.

ISS Australia managing director Professor Geof Stapledon observed product disclosure statements and prospectuses were often complex and lengthy documents where important information was not always clearly identified or recognised by investors.

“Disclosure of key facts should not be buried deep into the document and spin on related party transactions, which could give rise to conflicts of interest,” he said.

Australian Consumers’ Association chief executive Peter Kell felt people often did not fully grasp crucial concepts such as the risk involved with a particular investment because they did not understand the language used in disclosure documents, and said the situation needed addressing in light of products like reverse mortgages.

“People don’t naturally have an understanding and estimation of risks. Reverse mortgages will become important and the challenge is will those products be easy to understand?” he said.

Kell also suggested ASIC implement a risk rating scale, from one to five, and for it to be attached to investment products to allow consumers to better comprehend risk.

ASIC executive director of compliance Jennifer O’Donnell examined the disclosure practices surrounding conflicts of interest and said documentation of this type had to become more tailored to the specific situations in question as well as easier to understand. She added that current practices seemed to focus on management of conflicts of interest rather than eliminating them.

“We have seen plenty of disclosure, quite a bit of controlling but not enough avoiding. I agree disclosure has got too big and needs to be plainer, easier to understand and less boilerplate,” O’Donnell said.

ASIC chair Jeff Lucy looked at Statements of Advice (SOA) and said only information relevant to the advice at hand should be included and generic information currently contained in most SOAs should be done away with.