At a time of deep concern about the ability of public pensions to fully fund healthy and happy retirements for the growing population of aging Europeans, regulators and the financial services industry have made a commitment to help European households address this misallocation and improve long-term outcomes.

To do so, we must convince households to shift money out of bank accounts and into financial investments. Increasing European participation in mainstream financial markets would not only help households improve returns and build retirement savings, it would also provide badly needed capital for the European economy. If even a portion of that €11 trillion were to be invested in funds focused on the European economy, it would provide a huge boost to economic growth.

The first step in building a retail investor culture in Europe is to help foster an investment mindset among European households. Broadridge recently participated in a webinar with some of the most esteemed experts in the industry to discuss how we can achieve this important goal. There was complete agreement among these panelists that the only way to cultivate an investment mindset is to first build a sense of confidence in financial markets and investments among European consumers. They also agreed on a key element required to create that confidence: broad financial literacy based on improved communications from fund providers that help make investment products more transparent and understandable.

Technology innovation makes it possible to convey the information that individuals need to make informed and smart decisions—even if they have no expertise in financial markets.

Consider the changes now unfolding in investment fund disclosures. Until very recently, almost all communications between fund providers and their shareholders took the form of thick prospectuses and annual reports, and multi-page disclosures on portfolio holdings and proxy voting information. It was a poorly kept secret that the vast majority of retail investors had neither the inclination nor the understanding to pore through all this material, and much of it went unread.

Today, fund providers understand the importance of providing a fast-growing retail investor base with information that they can actually digest and use. This understanding originates at least in part from pressure from regulators, who are working to pass new rules to ensure retail investors are armed with the information they need.

In the United States, the Securities and Exchange Commission in 2023 implemented the landmark Tailored Shareholder Report Rule to improve investor disclosures. The UK’s Financial Conduct Authority is moving in the same direction with its new “Consumer Duty” framework, which puts the onus on fund providers to put customer needs first and deliver good outcomes for retail investors. The U.K. regulator is using those principles to create the Consumer Composite Investments (CCI) Regime, which will allow fund providers to take flexible and innovative approaches to engaging consumers and getting them the information they need. Later this year, the EU is expected to revise rules on disclosures under the Retail Investment Strategy and to issue a Financial Literacy Strategy under the auspices of the Savings and Investment Union.

Modernizing Fund Disclosures

As regulators and the industry partner on this important mission, they should focus on changes that will promote better understanding and decision-making among retail investors:

Make disclosures shorter and easier to understand, and make the information in disclosures “comparable” across funds to allow investors to more simply assess performance and compare investment options.

Shorter and Easier to Understand

If lengthy prospectuses and annual reports were tough for my generation to digest, think about how they must seem to younger investors with attention spans more attuned to social media and text messages. Guillaume Prache, President of Better Finance and a panelist on the Financial Literacy webinar, pointed out that EU law already requires investor information to be clear and intelligible. He also only half-jokingly noted that that it’s one of the “least enforced provisions” of EU investor protection laws.

Everyone on the panel, and indeed almost everyone involved in financial markets, agrees that fund disclosures must become shorter and easier to understand. Research conducted by Broadridge found that most disclosures are written in language appropriate for an academic-level audience. That doesn’t happen by accident. Rather, the complex language that finds its way into prospectuses and annual reports is the result of a continuous push-and-pull inside investment organizations. On the one side are the investment and marketing teams who want to communicate information to shareholders. On the other are lawyers tasked with compliance and liability management. The end product is often language completely unsuited for a retail audience.

The industry needs to transition to simple and content-rich language that effectively communicates to retail investors. In many cases it won’t be language at all. Most investors today prefer short, graphical communications that are equally easy to read on a computer screen or on a phone. Using “layering,” fund providers can deliver the most important top-line information through simple, graphical presentations and allow investors to go deeper by clicking through to more detailed content. Effective investment disclosures make it easy for investors to understand key aspects of the fund including performance, expenses, investment strategy and largest holdings.

Comparing One Fund to Another

It’s not enough to make information simple. It must also be standardized so that retail investors can easily make comparisons among different investment products. Fund providers today can deliver tools that allow investors to click a link and see a graph that compares one investment fund or asset class to several others. In its simplest iteration, such a tool would give retail investors a compelling picture of how their potential outcomes would differ if they invested in a broad equity index instead of keeping their money in cash.

Literacy and Engagement

There are countless opportunities for the industry to use new technology to help encourage retail engagement.

This was the view of Robyn Laidlaw, Head of Distribution, Europe, for Vanguard Asset Management and a participant in the Financial Literacy webinar.

Innovation has given fund providers the ability to tailor communications to specific groups, or at the very least, to guide individuals to the information most relevant and important to them. Using this approach, the industry can advance goals such as encouraging engagement among women, who are currently less likely to be investors, and providing key information about sustainability to consumers concerned about the environment impact of their investments.

Using layering and other techniques, all this information—including everything an investor needs to make an informed decision—can be delivered to investors in a concise and graphically compelling format. These improved communications will go a long way to creating a more financially literate investor base, with better information, deeper understanding, and more confidence in financial markets. The result of these efforts should be higher levels of engagement in investment markets, a shift to more appropriate savings allocations for European households, and better long-term outcomes for European investors.

We hope that this update has been helpful. We aim to simplify the challenges of the investment industry by delivering client-centric services and products that address the ever-changing requirements of financial regulation.

Discover how we address ever-changing regulatory requirements for EU and UK framework for financial services compliance HERE.