The FSA has fined The Ancient Order of Foresters Friendly Society £55,000 for financial promotions failings in a multimedia campaign featuring amongst others ‘Groundforce’ star Tommy Walsh.
Topic: Financial promotions
Who: The Financial Services Authority
When: August 2006
The FSA fined on 25 August 2006 The Ancient Order of Foresters Friendly Society ("Foresters") £55,000 for financial promotions failings including substandard TV adverts and direct offer packs targeted at elderly customers. The FSA fine was imposed because Foresters failed to promote financial products to consumers in a way that was "clear, fair and not misleading". Foresters neglected to ensure that promotion of two of its products, 'Autumn Gold' and the 'TeddyTrust' child trust fund, contained a fair and adequate description of the risks and drawbacks of the product. In addition, the FSA was concerned that Foresters had described its 'Autumn Gold' whole of life insurance policy as a funeral plan in one of its promotions, when it was not a funeral plan.
The specific failings highlighted by the FSA in the formal Final Notice accompanying the Press Release cover a range of aspects of compliance with the FSA's financial promotions regulatory regime, from the absence of a process to ensure all promotions were reviewed for compliance before issue and all related records were made and kept, to specific items of non-compliance (and the absence of appropriate risk warnings in particular) and a lack of balance in the promotions themselves.
In its Final Notice, the FSA quotes from its April 2002 publication, "The FSA's regulatory approach to financial promotions":
"Part of the creative challenge for those marketing products is to make advertisements stand out from those of competitors. The difficulty arises when they are tempted to 'gild the lily' to such an extent that they mislead consumers, either by presenting a seriously unbalanced impression of their own products, or by way of misleading comparisons with alternatives. Benefits may be exaggerated in the minds of consumers, and potential drawbacks glossed over, leading to unrealistic expectations.
… Our research revealed that around two-thirds of those consumers who had bought an investment using a promotion did not have a reasonable understanding of their product in terms of the risks involved, the length of the investment and the existence of charges. Such unfamiliarity increases the chances that consumers will take potentially misleading headlines at face value".
While it is not said expressly, one can't help feeling that this was a case of 'gilding the lily', with the overall look and feel of the product – branded as 'Autumn Gold' and presented by the reassuring actress Stephanie Cole and Ground Force's Tommy Walsh – combined with the elderly as the target consumer, contributing more to the FSA's concerns than the absence of a fair description of the risks and drawbacks. Clearly, misdescribing the product itself as a funeral plan, rather than a life insurance policy, was not helpful, though that is area where the plain English campaigners have been known to advocate clarity of benefits and risks over disclosure of the precise legal nature of the product being sold.
Slightly embarrassingly, Foresters' CEO, Mark Rothery, has recently been appointed as chairman of the FSA's smaller business practitioner panel to advise it on industry issues. Doubtless, the lessons from this enforcement action will feature on panel's business, perhaps along the lines of "there but for the grace of God, go I". More seriously, resources are clearly an issue for smaller businesses, especially in areas such as compliance where independence does result in 'real' costs to the firm. The Final Notice hints at this, when it says that the "misconduct was not, however, deliberate or reckless. Indeed, Foresters made efforts to comply with its financial promotions rules and is continuing to make progress in complying with its regulatory obligations generally".
Talking of costs, we note that the advertising campaigns drew in 'Annual Gold' premiums of close to £75,000, child trust fund contributions of £563,000 and a further £44,000 in children's' tax exempt savings plans, £682,000 in total. Against a fine of £55,000 plus costs (both for Foresters and the FSA), the disciplinary action again highlights the commercial, as well as legal, difficulties associated with such campaigns.
Why this matters:
The fine at £55,000 is relatively small, akin to a slap on the wrist. But the FSA's message to the market is very clear, however: we have given you clear warning signals – over a period of time and in a number of ways – as to the significant influence of financial promotions on consumers' financial decisions and specific areas in which improvements are needed. You have been warned! And furthermore, don't let us discover the failings first!