Download Advertising financial products and advice services

Financial
Services
24 February 2012
Advertising financial products and advice
services - riskier than fast food and real
estate but safer than cigarettes
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.
Focus
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.
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.
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.
BRISBANE
Level 11 66 Eagle Street Brisbane QLD 4000
GPO Box 1855 Brisbane QLD 4001 Australia
Telephone +61 7 3233 8888 Fax +61 7 3229 9949
SYDNEY
Level 16 55 Hunter Street Sydney NSW 2000
GPO Box 462 Sydney NSW 2001 Australia
Telephone +61 2 9270 8600 Fax +61 2 9270 8699
NEWCASTLE
Level 4 251 Wharf Road Newcastle NSW 2300
PO Box 394 Newcastle NSW 2300 Australia
Telephone +61 2 4924 8900 Fax +61 2 4924 8999
www.mccullough.com.au
Issue
Guidance
Example
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.
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.
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.
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).
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).
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.
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.
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.
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.
The advertisement for a complex product
which is only appropriate for a limited group of
consumers should not be targeted at a wider
audience.
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.
Issue
Guidance
Example
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.
Contact
For further assistance or enquiries please contact:
Tim Wiedman on +61 7 3233 8716
Sean Robertson on +61 3233 8860
Brendan Leighton on +61 7 3233 8985.
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.