ASIC Focuses on Advertising of Financial Products and Services - Advertisers Beware - Financial Services

ASIC is sending a message that it is prepared to take decisive action against financial services industry participants who create and publish misleading advertisements. Since July 2010, ASIC's actions have resulted in 117 advertisements across the financial services sector being withdrawn or remedied in response to concerns about poor practices and potentially misleading and deceptive conduct. ASIC has stated that it will now aim for stronger penalties than it has traditionally sought in the past. The penalties for making false or misleading statements can range from minor infringement notices to imprisonment.

Overview

In February 2012, ASIC released Regulatory Guide 234 Advertising financial products and advice services: Good practice guidance (RG 234). The purpose of RG 234 is to provide promoters of financial products (e.g. product issuers, financial advisers, distributors, agents) and publishers (e.g. printed media, television, internet etc) guidance on how to comply with their legal obligation not make false or misleading statements (ASIC cites 9 legislative provisions which it can use to take action against potentially false and misleading conduct).

RG234 applies to the advertising of all types of financial services and financial products including investment products, risk products, non-cash payment facilities and credit facilities (although RG234 contemplates an additional guide being issued for credit products and services). This includes advertisements for advisory services (both general and personal advice).

RG 234 covers:

Good practice guidance on advertising generally;
Media specific guidance for advertisers using different types of media (e.g. mass media, audio advertisements,film and video, internet or outdoor advertising);
The responsibility of publishers and media outlets for ensuring that advertisements are not misleading and deceptive; and
ASIC's regulatory powers. ASIC has an extensive range of powers to investigate and enforce behaviour that it considers to be misleading and deceptive.

What this means to you?

Some may argue that ASIC's approach to financial product and service advertising is an implicit acknowledgement that investors do not read disclosure documents and simply buy products and services on the basis of advertisements which are not by definition designed to fully inform potential investors.

Whether or not you agree with ASIC's approach, it is clear that ASIC is taking a hard line on disclosure (this is reinforced by other recent product specific disclosure guidance that has been issued by ASIC).

This means that financial services providers must review all existing and future marketing material (and any policies in place in relation to marketing) to ensure compliance with ASIC's guidelines. Care must also be taken in considering whether to advertise on new forms of media such as Twitter where character limits may make balanced disclosure prohibitive (including any required warnings).

When is a statement misleading or deceptive?

A statement or representation in advertising or promotional material will be misleading and deceptive if it creates a misleading impression in the mind of a consumer irrespective of whether the maker of the statement or representation intended to mislead or deceive or whether or not the consumer was actually deceived.

RG 234 provides that in assessing whether a statement or representation is misleading and deceptive:

The relevant test is the reaction of an ordinary and reasonable member of the advertisement's audience - normally anyone who is neither unusually astute nor unusually gullible.
Consumers cannot be expected to study or revisit an advertisement. Accordingly, the most important consideration is the overall impression created by the advertisement when viewed for the first time. Sometimes the headline claims are so strong and prominent so that separate qualification and disclaimer information would not be sufficient to correct the misleading impression.
Whether a particular statement is misleading or deceptive will depend on all circumstances of the particular case and the context in which the statement is made. For example, the Corporations Act specifies that if a person makes representations about future matters without reasonable grounds, those representations will be taken to be misleading.
Generally, if an advertisement is misleading, then it cannot be cured—a promoter cannot rely on an accurate disclosure document such as a product disclosure statement to undo the effect of a misleading advertisement.
Silence can be misleading or deceptive when it is reasonable for a consumer to expect disclosure of important information—silence on important details can render a statement misleading, even though it is factually correct.

In determining whether an advertisement is misleading or deceptive, ASIC will consider the overall impression given by the advertisement including the subject, content and format of the advertisement, the audience for the advertisement, the media used to communicate the information and the likely effect of the advertisement.

Good practice guidance for all media

RG 234 states that, as a matter of general principle, advertisements should give balanced information so that consumers can understand the nature of the financial product or service being advertised. Some of the key dos and don'ts contained in the guide are summarised below.

Topic	Do	Don't	Examples of potentially misleading and deceptive conduct
Returns, benefits and risks	Give a balanced message about return, risks and benefits Include a prominent statement about risks of the product Clearly explain assumptions made in predicting return or benefit Mutually exclusive benefits should be clearly stated Include a prominent statement that benefits or returns may not be available if circumstances change and highlight the types of change which may occur Benefits and returns should be quoted net of fees and the effect of fees and costs on returns should be clearly stated Risk disclosure should be prominent and not hidden High risk products such as CFDs and other derivatives and products which have unusual risk factors should highlight special risk factors (e.g. margin calls) which may not be apparent to investors	Overstate potential benefits and returns or create unrealistic expectations by giving prominence to benefits Make claims about features or benefits which are not reasonably expected to be available to consumers Make open ended promises about benefits if a change in circumstances will make the statement misleading Generally, product issuers should not make claims that they are fully insured or guaranteed against downside risks unless this is actually the case	When an expected rate of return is advertised for an investment product, the risk of that return not being achieved and the investment reducing in value must be included in the advertisement If an insurer advertises that its insurance is offered at the lowest cost available and it does not clearly note the strong possibility that this could change if the market is competitive The use of advertising such as 'Options trading is easy', 'returns of 5%-10% per month', 'build personal wealth with low risk trading strategies' and 'safely harness the leverage power of CFDs' for high risk products
Warnings, disclaimers, qualifications and fine print	If the headline claim makes strong representations about benefits and returns, a prominent warning should be included Warnings should be effective to convey key information on a first viewing of the advertisement Warnings should be in the same format as the main body of the advertisement. However, statutory warning required by law (e.g. the general advice warning) does need to be in the same format as the main body of the advertisement Qualifications to the headline statement should be made at the same time as that statement and should not change the meaning of the headline statement	Include warnings which are inconsistent with other parts of the advertisement Place warnings in fine print, in dense block text, around other content which could be distracting or, in the context of television of computer advertisement, only shown for a brief period of time Refer to additional information in other documents such as a webpage or PDS to correct misleading disclosure in an advertisement	A superannuation fund advertises a low administration fee of $104 p.a. It is acceptable to qualify the statement with 'other fees and charges apply – refer to our PDS' but it is not acceptable to merely state 'refer to our PDS' Online advertising of insurance products which appeared unqualified but were in fact subject to conditions. Qualifications should be included in same banner advertisement
Fees and costs	Fees should give a realistic impression of overall fees and costs a consumer is likely to pay. Effect of fees on returns should be clearly stated. Factors requiring disclosure may include net returns, maximum fees payable if the fees are variable, the existence of undeducted fees when calculating net returns, multiple fee options, entry and exit fees	State that a product has only one fee or is fee free if consumers are likely to incur third party costs in acquiring the investment. ASIC assumes that investors do not understand the distinction between a fee of the product issuer and a third party cost. Suggest that financial advice is free or low costs if in fact the consumer would pay for the advice indirectly by way of a commission to advisers	A superannuation fund advertised that its members would pay 'one low fee', but didn't mention that other costs or charges would also apply A basic deposit product advertised as 'fee free' where there was a limit on the number of free transaction on the account, without qualification
Comparisons	Comparisons should only be made between products with similar features Comparisons showing differences over time should ensure that the differences remain accurate and relevant over a reasonable time period Comparisons between returns should clearly highlight any key assumptions Only use credit ratings from a licensed credit rating agency in advertisements Ratings should be properly explained in the advertisement or by reference to the relevant document for additional information When mentioning awards the year of the award should be made clear	Compare only one feature of financial products and ignore other features. For example, it is misleading to highlight that an insurance product has lower costs than another product and not highlight the difference between the level of cover Use high or low to compare level of benefits and returns if the assumptions underlying those comparisons are not explained	It is not good practice to advertise that a debenture rate is better than a bank term deposit rate as the two products have very different risk profiles Using the statement 'Best Investment Product of the Year Award' without and explanation of who granted the award and any relationship with the product issuer
Past performance and forecast	Must be clear that past performance is not indicative of future performance Information on past performance should comply with ASIC's regulatory guide 53 Forecast information needs to disclose a reasonable basis and comply with the Corporations Act and ASIC's regulatory guide 170		A fund published an advertisement stating that it was 'the best performing of all funds sold in Australia over 15 years'
Use of certain terms and phrase	Take care when using words with strong connotations such as "free", "guaranteed" etc which could be misleading if used in the inappropriate context. For example, ASIC considers that a Bank which uses the term "everyday savings" to describe an account as misleading where the account has high fees and low level of withdrawal flexibility	Use terms with strong connotations to create unrealistic expectations, indicate a certain level of security or protection which does not exist. E.g. debentures advertising "invest with certainty" Use industry jargon or technical language unless the advertisement is targeted towards a specific group Use restricted terminology such as "independent", "impartial", "unbiased", "stockbroker", "shareholder", "insurance broker" or "general insurance broker" otherwise than in accordance with the Corporations Act Use false endorsements or testimonials	A debenture issuer used phrase 'invest with certainty' and 'The rate you choose is secured for the term of your investment An option trader marketed share trading software with 'Writing covered calls is the same as shares in rental or renting real estate' A celebrity should not claim that they are satisfied with a product if they actually know very little about the product
Target audience	Consider the characteristics of the actual audience that is likely to see the advertisement and their level of financial literacy in determining whether or not information is adequate Ensure that the advertisement is sufficiently simply to be understood by the actual audience	Target a wide audience when the product would only be adequate for a limited group of people (e.g. targeting complex structured products to elderly investors with limited financial knowledge) Rely on third party (e.g. a financial advisor) to correct knowledge gaps and misleading disclosure in advertisements	An advertisement of a complex financial product might be appropriate for readers of a specialist publication but not for general television and newspaper readers
Consistency with disclosure documents	Advertisements should be consistent with existing disclosure documents Disclose key disclosures in disclosure documents Require consumers to consider a PDS or prospectus when deciding whether to acquire the product and indicating where and how the PDS or prospectus can be obtained	Rely on consumers reviewing disclosure documents to correct any misleading statements	An issuer of capital protected products and structured products advertised that the units provided investors with tax deductible interest expenses but in PDS recommended that independent advice be obtained
Photographs, diagrams, images and examples	Ensure that graphics are not misleading Present tables, charts and diagrams in an easy to understand manner	Use graphics to contradict or reduce the prominence of qualifications	An advertisement with an image which suggests that a mining business is at a more advanced stage that it actually is
Nature and scope of advice		Create unrealistic expectations of what the service can achieve Mislead as to the nature of the financial adviser's experience or qualifications	Where a financial adviser has gained experience in a different industry sector and advertisement for the adviser should be clear about where the adviser gained their experience

Media-specific guidanc

RG 234 also provides good practice guidance to help promoters develop advertisements for specific media including: mass media such as radio, television, newspapers and magazines; Internet advertising; and outdoor advertising. This guidance is summarised in the table below

Media type	Guidance
Mass Media e.g. radio, television, newspapers, magazines and the internet	Mass media has the capacity to reach a wide audience. Promoters should onsider the characteristics of the actual audience that is likely to see the advertisement (e.g. their financial literacy, knowledge, demographics) and whether the advertisement is accurate, balanced and helpful for that audience Clear demarcation between advertising and program content should be made so that the distinction is readily apparent to consumers Advertisements should not be presented as news programs or other programs
Audio advertisements e.g. radio or telemarketin	Where warnings or disclaimers are used in audio advertisements, they should be read at a speed that is easy for an average listener to understand
Film and video advertisement	Warnings or disclaimers are used in film and video advertisements, should be prominent despite the distractions An average viewer should easily understand any disclaimer or conditions on the first viewing of an advertisement
Internet advertising e.g. webpages, banners, video streaming (e.g. Youtube), social networking and microblogging (e.g. twitter)	As with other forms of advertising, promoters should consider the overall impression created by the advertisement when viewed for the first time. This means that if internet banner advertisement makes a strong headline statement about the financial product, the relevant disclaimers and assumptions should be included on the banner rather than on the webpage the banner links to Scrolling disclaimers and qualification should move at a speed that allows users to easily view the disclaimer Carefully consider the appropriateness of some new media channels if content limitations mean that there is insufficient space to provide balanced information
Outdoor advertising	Outdoor advertising may be better suited to promoting brand or product recognition, rather than conveying more complex information about a financial product

Guidance for publishers and media outlets

While the primary responsibility for advertising material rests with the organisation placing the advertisement, ASIC considers that publishers and media outlets may also have some responsibility for content. ASIC encourages publishers and media outlets who deal with advertisements for financial products and advice services to:

understand their responsibilities when publishing advertisements; and
refuse to publish, or cease publishing, an advertisement if ASIC tells them the advertisement is the subject of regulatory action (e.g. a stop order or public warning notice). ASIC will assist publishers by making this information available.

What can ASIC do to you if you breach the law?

ASIC has a wide range of powers to take action for dealing with breaches of the misleading and deceptive conduct provisions, including:

exercising information gathering powers before considering regulatory action;
seeking an injunction to stop the advertisement;
issuing a stop order on related disclosure documents;
initiating a compensation claim or seeking an order to redress for losses by investors;
accepting an enforceable undertaking;
applying for punitive orders requiring corrections;
issuing an infringement notice or a public warning notice;
seeking a civil penalty, applying for a community service or probation order or initiating criminal charges; and
suspending or cancelling an AFSL or making a banning order.

Our Financial Services team can assist you with any queries in relation to financial product advertising and promotion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Australia: ASIC Focuses on Advertising of Financial Products and Services - Advertisers Beware