The Levitt test for financial risk disclosures

Do your risk disclosures pass the Levitt test?

In “A Word to Wall Street: ‘Plain English,’ Please,” former SEC chairman Arthur Levitt sets a high standard for your communications about risk.

Levitt says, “For the language of financial disclosure, we need to raise the standard from ‘potentially understandable’ to ‘impossible to be misunderstood.’ ” His article appeared in The Wall Street Journal.

Levitt speaks harshly about the quality of financial communications. “It’s not just that much of this stuff is difficult to understand; it is written not to be understood.”

If you’re used to producing what Levitt calls “an avalanche of impenetrable verbiage,” it will take time for you to learn how to write using plain English.

Improve your disclosures

Step 1. Assess the quality of your communications. Ask if you can realistically expect a non-specialist to understand what you’ve written. Next, test your assumption by asking a representative member of your audience to read and then explain your text in their own words.

Step 2. Download A Plain English Handbook: How to create clear SEC disclosure documents, published by the SEC. It’s one of the best publications for financial writers and it’s FREE.

Step 3. Write, rewrite, and rewrite again. Start your long journey toward improving your financial disclosures. For me, it’s an ongoing challenge. There’s always room for improvement.