Particular issues to consider in financial product and advice advertising
The financial services industry advertises a vast array of different products. Many are similar, though many of those will have minor idiosyncrasies or disclaimers attached. A Product Disclosure Statement (PDS) of some hundred pages is often off-putting for a consumer at first blush. However, without reading that document, a consumer may miss an opportunity to invest in a potentially appropriate or useful financial product.
A problem faced by financial advertisers is that there has historically been little or no guidance as to what information should be packed into an advertisement and how. RG 234 sets out a detailed list of "good practice guidance" for particular aspects of financial products. For instance, it deals with how and where it may be appropriate to use industry jargon.
Although a comprehensive review of each "good industry guidance" topic is beyond the scope of this overview, we have recounted a summary of those individual topics below. In total, RG 234 covers ten broad topics. Most of the topics involve a common sense judgment call and we note that none of the summaries below should be treated as comprehensive or interpreted as legal advice.
1. Returns, benefits and risks
- Where a particular return or benefit is claimed, the advertisement must also include a warning of the risks or drawbacks involved with the product or advice.
- Any features that are claimed to be available for that product or advice must be reasonably available to a consumer.
- Open-ended promises about benefits should be avoided.
- If a benefit is only available for particular clients or for a certain time, this must be made clear.
- The "tone" of an advertisement must not undermine the existence or extent of risks (such as an overly positive outlook on a high-risk product).
- Prominent warning should be given of unexpected risks.
2. Warnings, disclaimers, qualifications and fine print
- Headline claims should not be misleading or inconsistent with warnings.
- Statements referring a consumer to a PDS or other part of a website are not sufficient to negate a false or misleading statement. This is a common issue for a number of website advertisements or other media where a PDS cannot sensibly be packed into the space of a small advertisement. As noted below, the advertising medium should then be reconsidered.
- Warnings should be in a similar form to the main body of the advertisement and generally not in "fine print" at the bottom. Warnings must remain clear and prominent enough to be read and understood.
- Qualifications should be published at the same time as the advertisement, not later.
- Strong headline claims may be misleading despite a warning; it may be best to avoid overemphasising benefits in a headline.
3. Fees and costs
- Where fees or costs are referred to in an advertisement, they should be presented by way of a realistic overview of the overall level of fees or costs likely to be paid by a consumer.
- If there are "other" or "semi-hidden" fees involved, those must be disclosed and it must not be represented that they do not exist.
- It should be clearly stated what effect the fees or costs may have on the financial product, such as disclosing a variable fee rate dependent on the size of an investment.
- Where providing advice services, avoid representing that an advice service is "free" or "low-cost" if there are actually other product fees or commissions payable. Those must all be disclosed.
4. Comparisons with other financial products
- Products with sufficiently similar features may be compared, but highlighting one feature while ignoring another feature may be misleading (for instance, mentioning a percentage return for one product while omitting the percentage return on another).
- When advertising differences in projected outcomes, these ought to be accurate and relevant. Projections should be consistent with reality for a reasonable period of time.
- It is not good practice to compare dissimilar products, as ASIC may treat this as misleading.
- Comparison of benefits and returns ought to be carefully assessed prior to making statements, especially where returns may only be likely in certain circumstances.
- Where using a rating prepared by a research house this ought to be explained and should be accompanied by data on where to find further information on the particular rating. (Please see our earlier article Research houses to be more tightly regulated under proposed ASIC reforms.)
- If claiming an award such as "Financial Planner of the Year", the source of the award must be identified and explained. It should be stated whether or not the award is current.
5. Past performance and forecasts
- Past performance, which often becomes an issue for financial predictions, should "unambiguously and without reservation" point to the fact that past performance is not indicative of future performance.
- Forecasts of performance must be based on reasonable grounds or they may be considered misleading.
6. Use of certain terms and phrases
- Certain terms such as "free", "secure" and "guaranteed" should be used carefully since their technical meaning may not reflect their general use meaning.
- Jargon, even terms such as "debentures" or "net tangible assets" may not be clear to consumers and may be misleading.
- Independence or impartiality should not be advertised where the person may receive commissions or referrals. Some of these terms are wholly restricted by section 923A of the Corporations Act.
- Unauthorised use of terms such as "sharebroker" or "life insurance broker" is also prohibited. See section 923B of the Corporations Act.
- Take care when using celebrity endorsements, as celebrities should have an understanding of the product prior to supporting it.
7. Target audience
- The target audience should be fully considered prior to advertising, as noted in the media-specific points below.
- In particular, complex products may have a limited audience, whereas larger audiences may be able to understand or not be misled when considering simpler products.
8. Consistency with disclosure documents
- Statements made in advertisements should be consistent with the PDS, prospectus or other disclosure document.
- However, an advertisement should not simply rely on context or information from a disclosure document where that information is not included in the advertisement. For instance, making reference to "page 8 of the PDS" may not be appropriate.
- It is compulsory to notify consumers that they should nonetheless read the product disclosure document before making a decision about acquiring the product. An indication must be given of where to find that PDS, prospectus or other disclosure document.
9. Photographs, diagrams, images and examples
- Images should not outweigh the message in an advertisement. For instance, an advertisement for a high-risk investment may be misleading if it features a large image of a person playing in a mountain of gold bullion.
- Tables, diagrams and charts may be included but should fairly represent the information conveyed without skewing that information or presenting an unbalanced image.
- Where case studies or examples are used, they should have an explanation of their purpose and assumptions on which they are based. Examples of benefit scenarios should also be accompanied by examples of detriment scenarios.
10. Nature and scope of advice
- Where advertising advice services, the scope and nature of that service should be portrayed accurately.
- Advice advertising should not "overreach" to topics or types of advice that go beyond "realistic expectations" about what the service can achieve.
Media-specific guidance for advertising financial products and services
RG 234 also provides a set of media-specific guidance topics for the following types of media. The advertisement must nonetheless comply with the above requirements, but when using the following media, these additional guides will also apply:
- mass media — consider the general audience
- audio advertising — warnings, disclaimers and qualifications must be read at a comprehensible speed for an average listener
- film and video advertising — warnings, disclaimers and qualifications should be easily understandable to an average viewer at first sight
- internet advertising — consider the "overall impression" created by internet banners, ensure there is enough space for all relevant information and ensure there is a way for consumers to keep a record of the advertisement (particularly important for randomised pop-up advertisements)
- outdoor advertising — consider the conditions under which the advertisement would be viewed, such as from a motor vehicle or high on a building
However, each of these is a fairly commonsense piece of guidance.
ASIC's blunt warning - penalties may be high
The clear message from RG 234, as well as from the FOFA reforms, is that marketing financial products and services is a delicate process. The public image of products and financial service providers should reflect a true and accurate picture of their attributes.
At the very least, where financial product or service providers comply with ASIC's "good practice guidance", it is more likely that they will avoid watchdog scrutiny. This is extremely desirable given ASIC's blunt warning, cited directly from RG 234, that "penalties can be high".
For more information on professional indemnity, please see the website of Colin Biggers & Paisley or contact Kemsley Brennan at email@example.com or James Stanton at firstname.lastname@example.org.
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.