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Monday, February 25, 2013

How Effective Communication Can Help Investors and Fund Managers

Navigating and understanding the prospectuses for mutual funds, pension or retirement accounts can be a daunting task even for the most financially astute minds. Distilling the necessary and salient information from these documents can be even more challenging if it is not in your preferred or first language.

An accurate and comprehensively translated prospectus can prove to be a decisive tool for both investors and financial firms. It can allow investors more easily comprehend what they are buying into and, in turn, can boost business prospects for the companies offering the funds.

Clear communication channels are vital for relaying information about key components and issues of the financial products. Being able to identify clear information on fees, performance, turnover and management makes the difference when deciding between a range of funds. Having clear, well-translated, accessible text is not just a part of marketing; it is a key business tool.

The trend for clearer communication from fund managers about their products and practices has been growing over the last decade – particularly as businesses move their communication methods online and open themselves to the global market place.1 Joe Mansueto, founder and CEO of Morningstar Inc., formed the company after spending time at Harris Associates and determined that with proper communication channels, investment opportunities would grow.2 Today, Morningstar.com offers a variety of information of investment opportunities localized in more than 10 languages.

Information on fees is one of the first aspects of the fund that is considered by potential investors. Prospectuses provide full details on how the fees are split, including items such as management fees, transfer agent costs and administrative costs. If any of this information is unclear, not only will the customer see potential risks, but the seller may lose out should a legal dispute arise.3 There is also no proven correlation between higher fees and improved performance of the fund, or by the fund managers.

When it comes to outlining the strategies and risks of a fund, the text-heavy explanations and instructions offer important information, whether a customer is already invested in the fund or if they are still considering it as an option. Details on investment products and methods – such as derivatives and short-selling – are outlined among the strategies and risks, providing information that is often a decisive factor in whether a fund is selected or not.

The prospectus outline of the management of a fund needs to be absolutely transparent to a potential investor. Information on the staff turnover at a fund gives an idea of its conditions, especially if a new fund manager has been added. The manager’s plans for the fund’s future strategy are important for customers looking to make long and short-term investments.

Prospectus material that can reach out to potential clients in a range of global markets can generate new business opportunities and enhance its client retention potential. An international portfolio of loyal investors is an ideal situation for a fund – and can be made possible through presenting information in clear and concise translations.

While mutual funds and retirement plans may be investors’ most common exposure to the importance of quality financial text translation, the global scope of business means that the principle spans many different financial products and their prospectuses. High-quality translation will not purely minimize potential liabilities, but it will provide a clarity and transparency that everyone looks for when they invest.

References:
1 Damato, Karen. “Talk About Your Full Disclosure! - A New Breed of Mutual Funds Go To Great Lengths to Keep Investors Really Up to Date.” Wall Street Journal. 10 July 2000: R.1.
2 Caggiano, Christopher. “Everything I Know, I Learned from Warren Buffett.” Inc. Magazine. Jul 1, 1999. Web: http://www.inc.com/magazine/19990701/811.html
3 Topic: Mutual Fund Basics > Fees and Expenses. Investorguide.com. Web: http://www.investorguide.com/igu-article-480-mutual-fund-basics-fees-and-expenses.html

 

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