Breaking the code

Did you know that, during the GFC, the attention of the FHAs and the FNMAs was largely focused on Fannie Maes and Freddie Macs? At the same time, the FOMC was preoccupied with debating the impact of CDOs and CMOs on the economy.

Confused? You’re not alone. Whether you were a layman or a seasoned financial professional, the explosion of abbreviations during the global financial crisis added yet another layer of bemusement to a lexicon that was already dizzyingly complicated. Cynics might even have concluded that, for the banks running those ill-fated collateralised debt and mortgage obligations, the additional confusion generated by this abbreviation infestation was actually – whisper it – quite welcome.

But it’s not supposed to be this way. Abbreviations are meant to provide a convenient shorthand. This applies to both acronyms and initialisms. Although “acronym” is often used loosely for both acronyms and initialisms, the distinction is helpful. In the narrow sense, an acronym is a word formed from the initial letters or syllables of a phrase and which – crucially – is pronounced as a word. An initialism, meanwhile, is formed from the initial letters of words, but is pronounced as a sequence of letters. So, Nato and laser are acronyms while UK and CDO are initialisms. Other abbreviations can be simple shortenings, like Fed, for Federal Reserve, or contractions, like Dr for Doctor.

Some abbreviations have become part of the language and need no introduction, so well understood are they. Few people need telling what the UN or the US are. Everyone accepts and understands BBC – and it’s far better than having to write out British Broadcasting Corporation.

A persistent problem

In financial writing today, however, the reader is faced not only with a bewildering proliferation of financial products, but an accompanying blizzard of jargon and abbreviations purporting to help explain them.

For the professional investor, these abbreviations can be helpful – the financial world would be an immeasurably less productive place if we had to explain GDP every time it came up in a conversation. But for the occasional reader of financial copy, all this shorthand can be baffling – if not terrifying.

The global financial crisis marked a recent low point. Besides CDOs and CMOs, we had ABSs (asset-backed securities) and MBSs (mortgage-backed securities) and a host of other such initialisms. These often appeared in articles that tried to explain what was going on, but frequently just added to the confusion.

But examples still abound today, not least with ETFs, some of which may even have an ESG sleeve. These terms are widely understood in financial circles, but many readers have little or no idea what they are. (For the record, they are exchange-traded funds and environmental, social and governance).

To make matters worse, some abbreviations outlast their usefulness. The acronym BRICs refers to Brazil, Russia, India and China, and is still commonly used in financial circles to refer to that combination of countries. But as the rate of growth in these countries diverges and their fortunes become less intertwined, there is less sense in talking of them as a single entity.

So, while BRICs is not yet extinct, it will probably eventually head to the graveyard where other old favourites are interred: EEC (European Economic Community) and VTC (video tele-conferencing). In our rapidly evolving world, arbitrary country groupings and technology soon become redundant, taking their abbreviations with them.

Best practice?

One common problem is the non-introduction of obscure abbreviations. At Copylab, we often come across articles or reports where an acronym or initialism is just dropped into the text without explanation. Any abbreviation that isn’t likely to be widely known among the intended audience should always be written out in full first. A simple example is the Bank of England (BoE). Once it has been written out in full and followed by its abbreviation (in brackets), the writer can then use BoE safe in the knowledge that the reader knows what’s what.

There are always grey areas, of course. Bracketing every abbreviation in this way could insult the reader’s intelligence. If you refer to the Federal Reserve in one sentence and the Fed in the next, does the reader really need (the Fed) to make the link? Many of our clients’ style guides require it, but most newspapers think that their readers can manage without.

Above all, we should remember that too many abbreviations are a turn-off. In its style guide, the Economist warns against “spattering the page with capital letters”. All too often, copy that’s littered with abbreviations might be better to avoid the technical vocabulary altogether. Writing, after all, is an effort to convey a message in the most effective manner, so that the reader takes that message on board. Shouldn’t the writer take the trouble to explain complex concepts in simple language? Our view is that the best pieces do just that.

Mike McNaught-Davis

CFA holder and one-time fund manager and financial marketer, Mike now lends his exceptional talents to Copylab's Edinburgh team.
Mike McNaught-Davis