What are they talking about?

Michael Drewett on the impenetrable world of financial services jargon

DIFFICULT to understand as financial services may be, things are made significantly worse by the liberal use of unintelligible jargon and convolution.

When the objective is nothing more than a comfortable retirement or some financial security, it is inconvenient and insulting to have to contend with double-Dutch. At times it may even prove dangerous to our financial well-being. So why do financial companies treat us in this way?

Jargon expert John Khan, director of Wordcraft Editing and Writing, believes it has a legitimate function in aiding communication within a common group. "However, it can be manipulated by 'insiders' to exclude 'outsiders'," he said.

To be fair, many financial brochures are now written more clearly, and try to inform rather than confuse. The danger is at face-to-face meetings.

Industry shorthand may be excusable within the trade, to allow faster execution of deals and better portfolio management. For example, a unit or investment trust composed of UK shares and without any complicated bells and whistles is usually described as "plain vanilla". That is fine for the professionals, but in a client's sitting room such language is meaningless.

Mr Khan said: "Psychobabble is a way out for an inadequate salesman, and technical financial jargon is basically self-congratulatory. His intended message is: 'Be impressed, and do whatever I tell you.' "

Philip Telford, at the Consumers' Association, feels the problem is not confined to the salesman; the institutions must also carry the blame.

"For example, I have a policy with Scottish Amicable," he said. "But they are not satisfied with something as mundane as a 'beginning' or a 'starting point'. No, my policy has a 'currency date'. What does that mean?

"If I wanted to invest in a pension scheme for my old age, it would not be sufficient to look at my basic salary and perhaps any variable bonus. Calculations would have to be made 'with reference to my fluctuating emoluments'. It sounds like something I should be treated for."

Steve Bee, pensions manager at Prudential, said he finds the constant use of jargon a turn-off. "I have heard pensions consultants discussing whether or not an individual with a Cimps [contracted-in money purchase scheme] was OK to run RAPs [retirement annuity premiums - forerunner of personal pensions] in the tax year 89/90 as long he switched into an Fsavc [free- standing additional voluntary contribution] thereafter.

"What are we doing? We don't even save money any more - we have 'premiums deducted'. I can only assume it gives some people an inflated perspective of their own importance."

In some cases, a term can mean something entirely different from what savers assume at first. "Front-end loading", for instance, is a way of taking all the charges from the payments made at the beginning of a contract rather than averaging them out over the period of the contract. Some might mistake it as a kickstart to their investment. If anything, the reverse is true. By loading charges at the start of a policy, firms ensure your savings barely benefit from the first year or two of the investment period.

Similarly, "maximum investment plans" do not offer maximum investment of your money. Instead, it is quite normal for an insurance company to snaffle all of the first six months' payments.

Convolution is just as bad as jargon. James Middleton, at the Plain English Campaign, gave one example of how a contract tried to explain the calculation of investment payments: "Each recurring accumulation in respect of an Arrangement will be equal in amount to the initial level of recurring accumulation contribution in respect of that Arrangement (included in the overall initial level of recurring accumulation contribution advised to the member)."

Mr Middleton added: "Although this all seems a harmless laugh, there is a serious point. Some people seem to think that the more important their job is, the greater their need to over-complicate things. In the end it is just a waste of money, time and resources - for example, stimulating extra telephone calls to seek clarification. It leads to more unnecessary money coming out of the consumer's pocket."

That is not the worst of it. Faced with baffling language and opaque products, investors are likely to make serious and very expensive mistakes. Arguably, the huge-scale misselling of personal pensions between 1988 and 1993 would have been far less likely if policyholders had been in a position to understand what was being done to them.

The alternative - investors refusing to have anything to do with product providers and their obscure language - is just as bad: inadequate home insurance or sickness cover could have a devastating impact financially. But until the providers put their house in order, that seems to be the road we will head down.