1. Short and sweet, or just short
Short and sweet, or just short? The readability of KiwiSaver product disclosure statements
Aaron Gilbert & Ayesha Scott
All results presented here are preliminary and should not be quoted without express permission of the authors.

2. What is KiwiSaver?
Non-compulsory, work-based retirement savings scheme
Members pay either 3%, 4% or 8%
Employer matches with 3% contribution
Government tax credit up to $520 per annum
Money is kept in a privately managed fund (KiwiSaver)
Members can choose their KiwiSaver provider
If they do not decide, allocated a default conservative provider
Money is locked in until age 65
Early withdrawal under certain conditions
Designed as a ‘top-up’ to NZ Super (state-funded pension)

3. New Disclosure Rules FMA guidelines:
Less than 12 pages (or 6000 words)
Understandable by ‘prudent but non-expert investor’
Plain English language & standardised structure
Explain scheme’s aims
Risks vs returns
Fees
Idea is to make key information more accessible
Should enable investors to make informed decisions
Grace period for new rules ended in 2016

4. Do simplified PDSs help investors?
Now that simplified disclosure has replaced the traditional prospectus and investment statements as the principle* source of investor information…
Are KiwiSaver disclosure statements easier to read?
Are they ‘short and sweet’ or just ‘short’?
*PDSs have not replaced traditional prospectuses, rather they are designed to have a different audience.

5. Why is readability important?
“For many New Zealanders, KiwiSaver will be their first investment and will impact their future financial security. … a key pillar of retirement” (FMA’s Compliance Focus for 2013, p8)
Regulators and policy makers work from base of informed decision making
Assumption is that investors do their homework, make informed decisions - their mistakes are their own
KiwiSaver investors assumed to be “prudent but not expert”
Anecdotal evidence from free KiwiSaver workshops at AUT
Many respondents felt better informed after workshop
Suggests current information sources are not cutting the mustard
Area of particular concern was the long term impact of fees

6. Are investors ‘prudent’?
Financial capability is a priority for NZ
“More people actively engage with and contribute to KiwiSaver”
“Disengaged KiwiSaver members may not be contributing enough, or not be in the optimal type of fund for them”
(National Strategy for Financial Capability 2015, CFFC)
Just 17% of year olds have a long term financial plan (Financial Knowledge & Behaviour Survey, CFFC)
39% of Kiwis are financially illiterate (Standard & Poor’s Global Financial Literacy Survey 2014)
Bottom line: Investors need access to information in a form that a layman can understand to make informed decisions about their retirement savings

7. What we did & plan to do Objective phase of study - today
How complex is the language?
How many specialised finance words are used?
How long are the sentences?
Fog Index: measure of readability
Function of sentence length & complex words
Used across a range of disciplines, including finance
Lower values mean more readable text
Subjective phase of study – future plans
Test of simplified disclosure by the people they are designed for
Focus groups to answer general questions
I’ll finish up today with the questions we want to ask – and open up the floor for any other questions you can think of

8. Data We looked at a total of 21 KiwiSaver providers
Their last Prospectus before simplified disclosure took effect
Their first PDS after simplified disclosure
So…are they shorter? YES!
But…has shortening the document met the FMA’s goals?
And…is it reasonable to assume 16 pages is more accessible to our investor than 80+ pages?
Word
Count
Sentence
Words per Sentence
Prospectus
29209
2977
9.77
PDS
5166
328
15.92
Change %
-82.32%
-88.98%
63.04%

9. Shorter = Easier to read…or does it?
Fog Index increased from 10.3 to 12.5 on average
For the PDSs, sentences are longer – they contain long lists rather than paragraphs
Range of vocabulary decreased by 60% on average
Language complexity decreased by 20% on average
Number of specialised finance terms decreased
Complex
Words
Unique
Finance
Prospectus
19.28%
2.61%
17.95%
PDS
15.29%
1.04%
7.63%
Change %
-20.73%
-60.13%
-57.50%

10. Key Takeaways
Overall, an investor needs a high level of general literacy to read a simplified PDS – just as they did to read a Prospectus
Equivalent to later High School/University entry level of literacy
But they need less specialised finance knowledge
Has simplifying the language met the FMA’s goals?
It is a step in the right direction, but possibly more needs to be done
One last thing though…

11. We used the ‘Must-knows of KiwiSaver’ webpage for the text example
sorted.org.nz
Designed to make key KiwiSaver information available
Developed by the Commission for Financial Capability
A useful benchmark of style & level of language
Fog Index = 10
Complex Words
Unique Words
Finance Words
Sorted
8.76%
0.79%
6.06%
Average PDS
15.30%
1.04%
7.63%
Difference %
74.52%
32.19%
25.96%
We used the ‘Must-knows of KiwiSaver’ webpage for the text example

12. More questions to answer
Are the key terms described in a useful way?
What do and don’t consumers/investors understand?
Does understanding lead to better decision making?
Is the issue of informed investors actually a question of financial capability?
Would improved readability result in more competition within the KiwiSaver space?