Readability of Financial Advisor Disclosures

We explore the readability of 30,000 registered investment advisor disclosures and find that these disclosures are written to a college reading level. This finding suggests it will be challenging for the average person to read a typical disclosure, which can lead to misunderstandings regarding conflicts of interest, fee structures, and the advisor’s background. Moreover, there may be agency problems, and uninformed investors may also be deterred from seeking financial advice. The readability of these disclosures has decreased over the past seven years. These results are consistent among four different readability proxies and contradict SEC requirements for ‘‘plain English’’ language in disclosures, specifically for firms providing financial planning services to individuals.