EDITORIAL: AT LAST, ESCHEWING OBFUSCATION

Whereas a significant period of discourse has passed, and, subject to appropriate disclaimers and implying no warranty or guarantee thereof, whereas InvestmentNews hereby avers, let it be declared, or stated and disseminated, that it is possible a sufficient interval has occurred.

In plain English: It’s about time.

Now that the Securities and Exchange Commission has approved its plain English rule for sections of prospectuses, including mutual fund prospectuses, perhaps more investors will read them before they write a check.

No longer will legalese obfuscate meaning, making it virtually impossible for anyone to understand the hundreds of words spread across the pages like black molasses (and about as hard to swallow, even with the legal training). No longer will this unappetizing concoction intimidate ordinary readers, deterring them from looking at more than the front page, summary and risk factor sections.

Kudos to the SEC, with special thanks to Chairman and plainer English champion Arthur Levitt Jr.

Examples of prospectuses written to conform to the new rules show what kind of improvement can be expected. The front page of an ITT Corp. prospectus was boiled down to 120 simple words from an intimidating 860 often legalistic babblings (“where of,” “there of”). The first paragraph was rewritten to 26 words from a mind-numbing 135 in the original.

Investors long have been required (theoretically) to review a prospectus before they buy. But only the most experienced and most serious of them took the time. The others simply paid lip service and trusted their advisers’ recommendations. Now, there’s little excuse for not reading at least the key three sections. And think of how many more investors might also be emboldened to read further through the small print to determine whether executives are overpaid, board members are overly dependent on management and the balance sheet isn’t a work of fiction.

But while you can lead horses to water, you can’t make them drink. The
SEC has cleaned up the water in the trough, but financial planners and investment advisers must be the ones who provide that encouragement.

Take advantage of the new simplified prospectuses to make sure clients do indeed read the most important parts of the prospectuses. After all, a better-educated investor is good for planners and advisers, good for companies and good for the economy. Most important, it’s good for the investor.