Recent threats to stop the “predominance” in financial advertising of “past performance” data: golden creative copy writing oppo or a control too far?
Topic: Financial
Who: The Financial Services Authority
When: April 2002
Where: London
What happened:
Financial services watchdog The Financial Services Authority published a consultation paper and a policy statement. These made it clear that the FSA was determined to promote awareness amongst consumers of advertising standards in this area. The plan was to publish regular bulletins for consumers covering the financial ad monitoring work done by the FSA and to set up a hotline for consumers to report ads which they believed to be misleading. According to the FSA, current marketing activity indicated that there were three areas that needed particular attention. These were (1) a lack of balance between benefits and drawbacks of a product, (2) claims that can lead to unrealistic expectations and (3) key information that gets buried in the small print.
On this latter point, the FSA indicated that according to their research consumers simply do not read the small print, whilst in relation to the creation of unrealistic expectations, the biggest culprit was the use of information as to past performance of a particular fund or financial service provider.
In relation to past performance, the FSA indicated that one of the factors driving the introduction of tighter controls was research which suggested that consumers tended to use past performance information to make inferences about the future performance of investments. This had to be contrasted with the fact that past performance information was not in reality regarded as a useful indicator of future performance for consumers.
The consultation paper therefore, in respect of which responses are invited by 3 July 2002, contains proposals whose aim is to reduce the marketing emphasis placed on past performance. The idea is also to encourage consumers to take factors other than past performance into account when making their choice of financial products.
In short, the proposals were (1) to no longer allow past performance to be the predominant message in financial product advertising (2) to prevent the use of past performance figures in a way that linked them to the likely future performance of a product (3) to change the current practice in relation to the standard past performance warning (telling consumers that past performance shown would not necessarily be repeated). This could be done either by requiring that the warning be included in the main text as opposed to the small print at the bottom of the ad and/or prescribing the actual wording to be used in the warning itself (4) requiring that in a lengthy marketing piece the past performance warning is given on every page, for instance on the net or in a brochure (5) giving guidance as to acceptable and unacceptable practices in relation to the use of hypothetical past performance figures (6) clarifying guidance on the interpretation of the "clear, fair and not misleading" requirement so as to encourage financial services not to use language that the target audience was unlikely to understand.
Why this matters:
These proposals were greeted with howls of protest from numerous quarters. One complaint was that by preventing the provision of past performance information the proposals would actually increase consumer detriment by making life easier for financial product providers who, because they had been so incompetent, could not sing the praises of their past performance. Another concern was that by more tightly controlling the amount of information that could be provided to consumers in financial product advertising, the proposals would drive consumers in search of information into the arms of Independent Financial Advisers or the Banks, and turn them away from those selling investment funds direct, thus restricting consumer choice.
On the other hand the proposals do not indicate that a complete ban on past performance figures is in prospect. They only require that they should not be the predominant message. The proposals are also entirely consistent with what has very much been a dominant theme of the FSA's message to those promoting financial products since its creation, mainly "balance" between the benefits and drawbacks of a product, a balance which advertisers have, for obvious reasons, yet to consistently achieve.
