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financial services sector being withdrawn or remedied in response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.
