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24 Feb 12
Advertising financial products and advice services - riskier than fast food and real estate but safer than cigarettes

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ASIC has released Regulatory Guide 234 outlining its good practice guidance for advertising of financial products and advice services.  Unsurprisingly, despite industry concerns, the good practice guidance is broadly the same as the proposals contained in the consultation paper issued by ASIC last year.  McCullough Robertson Partner Tim Wiedman identifies the products and services to which ASIC’s guidance applies and summarises the good practice guidance. 

What does the good practice guidance apply to?

ASIC’s good practice guidance applies to advertising of general and personal financial product advice and to all financial products, including:

  • investment products (such as shares, debentures and managed investment schemes)
  • risk products
  • non-cash payments facilities, and
  • credit facilities.

Advertising covers any communication intended to inform consumers about or promote financial products and financial advice services.

Good practice guidance

ASIC’s good practice guidance covers ten advertising issues and five advertising mediums.

Summary of good practice guidance for advertising

ISSUE

GUIDANCE

EXAMPLE

Returns, benefits and risks 

Advertisements should give a balanced message about the returns, benefits and risks associated with a financial product. 

If an investment product is advertised as offering a particular return, the advertisement should also state that the return may not be achieved and that the client may lose money.

Warnings, disclaimers, qualifications and fine print

Warnings, disclaimers and qualifications should not be inconsistent with other content in an advertisement.  The more that a qualification is required to balance information contained in the headline claim, the more prominently placed the qualification should be. 

However, qualifications should not be used to change the meaning of the headline statement.

Warnings, disclaimers and qualifications should have sufficient prominence to convey information to a consumer in the first viewing of the advertisement. 

If an advertisement for an insurance product highlights that consumers can choose to pay their premium as an annual, half-yearly or monthly payment, but it costs more to pay the premium monthly or half-yearly, this qualification should be prominently disclosed.

Fees and costs 

When an advertisement refers to a fee or cost, it should give a realistic impression of the overall fees and costs a consumer is likely to pay, including any indirect fees or costs. 

A bank account should not be advertised as being ‘fee free’ (without qualification) where the consumer may be charged costs in connection with the account.

Comparisons

An advertisement should only make comparisons between financial products which have sufficiently similar features or, where different products are compared, their differences should be made clear in the advertisement.

If the advertisement contains a rating of a product, the rating used should be properly explained either in the advertisement itself or by including details of where an investor can obtain further information about the meaning of the rating and the rating scale. 

An advertisement should not compare the return payable on a debenture to the return payable on a bank deposit, as a debenture is a significantly higher risk product.

Past performance and forecasts 

An advertisement containing past performance information should contain a warning that past performance is not indicative of financial performance. 

Forecast financial information in an advertisement should be accompanied by a statement that the forecasts are not guaranteed to occur (and forecasts should only be included where supported by reasonable assumptions). 

An advertisement for a property trust highlighting an average return of 8% per annum for the previous five years should include a statement that past performance is not necessarily indicative of future performance.

Use of certain terms and phrases

Terms and phrases should be used in a manner which is consistent with how the term is commonly understood by consumers.

Advertisements must not use terminology where usage of that terminology is restricted by law (for example that a financial adviser is independent or a stockbroker).

 An advertisement which describes a mortgage fund or debenture as offering a secured or guaranteed return is likely to be misleading or deceptive as it overstates the certainty of returns to be achieved by investors.

Target audience

 Advertisements should:

  • be capable of being clearly understood by the audience that might reasonably be expected to see the advertisement (rather than just the audience it is targeted to), and
  • not state or imply that a financial product is suitable for a particular type of consumer unless the promoter has assessed the product is suitable for that class.

The advertisement for a complex product which is only appropriate for a limited group of consumers should not be targeted at a wider audience.

 It may not be suitable to advertise a complex high risk product targeted at sophisticated investors on television or in a general newspaper.  It will be more appropriate for the advertisement to be included in a publication targeting sophisticated investors.

Consistency with disclosure documents

Advertisements should be consistent with information contained in any PDS, prospectus, other disclosure document or contract relating to the product.

If an advertisement draws attention to the specific features of a product it should be consistent with the corresponding disclosure in the PDS or prospectus. 

If a PDS for a home and contents insurance policy discloses exceptions to the flood cover provided by the policy, an advertisement should not promote the policy as covering all types of flooding.

Photographs, diagrams, images and examples

Photographs and images should not contradict, detract from or reduce the prominence of any warnings, disclaimers or qualifications and should not misrepresent the nature, stage or scale of the product or the issuer’s business.

An advertisement for a mining exploration company should not include images of operational mines where the business is in an exploration stage.

Nature and scope of advice

An advertisement for a financial advice service should not carry unrealistic expectations about what the service can achieve.

An advertisement should not describe a financial advisory firm as offering comprehensive advice for all a consumer’s financial needs if its advisers are only able to advise on a narrow range of issues or financial products.

 

Media specific guidance

ASIC has also provided good practice guidance for various advertising mediums. 

Mass media

Mass media refers to media channels used in mass communication, such as radio, television, newspapers, magazines, and the internet.  As mass media has the capacity to reach a wide audience, including beyond the audience targeted by the promoter of a financial product or advice service, ASIC encourages promoters to consider the actual audience likely to see the advertisement and whether the advertisement is accurate, balanced and helpful for that audience.

Advertising should be clearly distinguished from normal program or editorial content.  For example, a radio announcer reading a scripted advertisement should ensure the advertisement is clearly distinguished from usual program content.

Audio advertisements

Audio advertisements, such as on radio, should ensure warnings, disclaimers and qualifications are read at a speed that is comprehensible to an average listener.

Film and video advertisements

Information about risks and any warnings or disclaimers should be easily understood by the average viewer and should not be undermined by distracting sounds or images.

Internet

Promoters should consider the appropriateness of using internet advertising, such as banner advertisements, social networking and micro blogging, if content limitation means there is insufficient space to provide balanced information.  Promoters should consider the overall impression created by an internet banner advertisement (such as an inclusion of a headline claim) when viewed by itself for the first time.

Consumers should also be able to keep a record of an advertisement, including any disclaimers or warnings. 

Outdoor advertising

Promoters utilising billboards, posters, signs and public venues and aerial displays should take into account the conditions under which the advertisement will be viewed (e.g. from a distance or from a moving vehicle) when considering whether the overall impression of the advertisement is misleading or deceptive.

ASIC considers outdoor advertising may be better suited to promoting brand or product recognition, rather than conveying more complex information about a financial product.

Necessary consumer protection or over-regulation?

The purported purpose of ASIC’s good practice guidance is:

  • to assist promoters to ensure advertising does not contain false or misleading statements or constitute misleading and deceptive conduct, and
  • to protect consumers who, in ASIC’s opinion, are heavily influenced by advertisements in making decisions about investing in financial products or obtaining financial advice services.

Though a laudable and well-intentioned purpose, its implementation, when compared to the regulatory landscape applying to other products and services and to the nature of advertising, is onerous and misguided.  We support and encourage measures designed to ensure advertising is not misleading and deceptive.  However, ASIC’s interpretation that advertising must be balanced and highlight ‘the good and the bad’ so as not to be false and misleading is contrary to the purpose of advertising and more onerous than the standards imposed upon the providers or promoters of any other products and services.

Advertising is intended to promote and highlight the benefits of products or services and their value and enjoyment for the consumer.  Advertising aims to entice consumers to consider the product or service.  Advertising is not an impartial informative exercise.

For example:

  • advertisements for fast food show slim, healthy people enjoying the meal, they do not disclose that a particular meal contains more than an adult’s recommended daily intake of fat or that regular consumption is unlikely to result in the healthy lifestyle enjoyed by the actors in the advertisement
  • advertisements for new cars often show a model with all the additional extras and highlight the  price for the basic model, not the price of the actual car shown
  • an advertisement for a new real estate development highlights an estimated return with fine print, rather than prominent text, disclosing that the estimate is not guaranteed and is based on a number of assumptions without including specific details of those assumptions, and
  • an advertisement for food promoted as being 97% fat free is not required to disclose that it is full of sugar.

In each of these cases, the consumer can obtain further information prior to purchasing the product or service. A fast food menu or food label will include dietary information. The purchaser of a new apartment must be given extensive disclosure material prior to signing a purchase contract, and this material contains details of the assumptions on which any return estimate is based and clarifies that it is not guaranteed (or only guaranteed for a short period, such as 12 months). Further, the car dealer will inform the consumer of the price of the car and the cost of any additional extras such as mag wheels, spoilers, tinted windows and leather interiors before the consumer buys the car.

Additional disclosure must also be provided to retail consumers of financial products and advice services, in the form of product disclosure statements, prospectuses, financial services guides and statements of advice, prior to the consumer obtaining the product or service. Indeed, the disclosure requirements for financial products and services are more complete, balanced and transparent than for nearly any other product or service.

It is unfortunate that, despite the comprehensive disclosure regime applying to consumers of financial products and advice services, ASIC has adopted the view that consumers base their investment and similar decisions on advertising and therefore advertising should also fulfil the disclosure function. This view places promoters of financial products and advice services at a significant disadvantage to other product providers.

In essence, the good practice guidance means ASIC characterises advertising of financial products and advice services as ‘riskier’ for consumers than other high cost items such as real estate and motor vehicles and ‘worse’ than fast food, alcohol and gambling, which not are subject to such onerous advertising standards. However, on a positive note, at least ASIC did not classify financial products and advice services as damaging as cigarettes and ban advertising altogether!

The lesson for promoters of financial product and advice services

Promoters of financial products and advice services should review their existing and future advertisements in light of ASIC’s new requirements.

 

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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