Short-Form Disclosure Documents ― An Empirical Survey of Six Jurisdictions
Capital Markets Law Journal, Vol. 11, No. 2, pp. 296-316, 2016
21 Pages Posted: 16 May 2016
Date Written: May 12, 2016
Recent years have seen a trend in many countries towards the adoption of short-form disclosure documents for the sale of financial products (ie, disclosure documents in respect of which the maximum page length is prescribed, either on a mandatory or recommended basis). This trend has been driven by a number of factors, including recognition of the limitations of the conventional approach to disclosure in explaining content in terms that investors can understand (despite the use of plain English or plain language techniques), challenges arising out of the increasing complexity of financial products and also the results of investor research demonstrating that retail investors are not likely to read lengthy disclosure documents.
This article reports on the findings from an investor survey undertaken to gain insights into the readability and relative strengths and weaknesses of short-form disclosure documents as adopted in six jurisdictions: Australia, Canada, the European Union, Hong Kong, New Zealand and Singapore. A number of important findings emerge from the survey. Significantly, the disclosure document that was based on the approach in Canada was overwhelmingly considered to be the easiest to read, whereas the disclosure document that was based on the approach in Australia was overwhelmingly considered to be the hardest to read. In terms of which was the easiest document to understand, neither demographics nor financial literacy had any impact on this decision, and the five most influential factors were ranked as follows: (1) language that was easy to understand; (2) clear explanation of the key features; (3) appropriate format; (4) appropriate length; and (5) clear explanation of the investment risks. Other findings include the effectiveness of synthetic risk indicators and the extent to which investors invest solely on the basis of a disclosure document.
Keywords: Disclosure; Investor Survey; Financial Products; Short Form Disclosure
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