ASIC recently released a consultation paper dealing with best practice guidance for the advertising of financial products and financial advice. Comments on the consultation paper, and the draft regulatory guide it includes, are due by 25 October 2011. ASIC aims to release a final version of the regulatory guide in January 2012. Partner, James Dickson provides a brief summary of the draft regulatory guide.
According to ASIC research, approximately 44 per cent of investors rely on media-based information sources to make investment decisions on financial products and advice. These sources include the internet, financial magazines, daily newspapers, television investment programs and radio investment programs.
As a result ASIC has released draft best practices advertising guidelines which it hopes (once finalised) will encourage promoters and publishers to give clear, accurate and balanced messages when promoting financial products and advice services so that consumers are able to make balanced and informed decisions.
Promoters and publishers of financial products and advice services should familiarise themselves with guidelines, which ASIC itself observes may help such persons avoid making false or misleading statements or engaging in misleading or deceptive conduct in contravention of the Corporations Act or the ASIC Act.
ASIC expects to release a final version of the regulatory guide in January 2012.
Who the guidance will apply to
ASIC intends that the guidelines will apply to:
- promoters of financial products and financial advice services (which will sometimes be the product issuer, but may also be a third party such as a financial adviser, distributor or agent)
- publishers of promotions about financial products and financial advice services. What the guidance will apply to ASIC intends that the guidelines will apply to:
- all types of financial products, including investment products, risk products, non-cash payment facilities and credit facilities
- both general and personal financial product advice
communicated to consumers through any medium in any form.
In addition to the traditional forms of media (i.e. radio, television, newspapers, magazines and the internet), ASIC intends that the guidelines will cover communications made to consumers through contemporary forms of media, including streaming (e.g. YouTube), social networking and microblogging (e.g. Twitter).
ASIC plans, however, to issue separate regulatory guidelines for credit providers and providers of credit services under the National Consumer Credit Protection Act 2009.
ASIC does have a range of other advertising guidelines which are productspecific, including for mortgage schemes, unlisted property schemes, debentures and unsecured notes and over-thecounter contracts for difference. The new guidelines will need to be read in conjunction with any past or future product-specific guidance given by ASIC.
The draft guidelines include the following media-specific good practice guidance for advertising financial products and advice services:
- promoters who intend to advertise in the mass media (i.e. radio, television, newspapers, magazines and the internet) should ensure that advertising is clearly distinguishable from normal program or editorial content and should consider the actual audience that is likely to see the advertisement and whether the advertisement is accurate, balanced and helpful for that audience
- audio advertisements should include warnings, disclaimers and qualifications that are read at a speed that is comprehensible to an average listener
- warnings and information about risks in film and video advertisements should be easy to understand by an average viewer on the first viewing of an advertisement and not undermined by distracting sounds or images
- internet advertisements should be self-contained – i.e. consumers should not need to click through from an online advertisement to additional information to ensure that they are not misled
- promoters should consider the appropriateness of using new media channels for advertising if content limitations mean there is insufficient space to provide balanced information (e.g. Twitter, which imposes a 140 character limit on messages)
- consumers should be able to keep a record of an internet advertisement (e.g. by printing it), including any disclaimers or warnings
- promoters should take into account the conditions under which outdoor advertisements will be viewed (e.g. from a distance or from a moving vehicle) when considering whether the overall impression of the advertisement is misleading or deceptive.
The draft guidelines include the following general good practice guidance for advertising financial products and advice services in all forms of media:
- advertisements for financial products should clearly explain the nature of the advertised product
- advertisements for financial products should give a balanced message about the returns, benefits and risks associated with the product – benefits should not be given undue prominence compared with risks
- warnings, disclaimers and qualifications should not be inconsistent with other content in an advertisement, including any headline claims, and should have a proportionate level of prominence to the claims to which they refer
- advertisements should be selfcontained – i.e. consumers should not need to access a warning, disclaimer or qualification contained in another website (or other page of the website) or document
- where fees or costs are referred to in an advertisement, it should give a realistic impression of the overall level of fees and costs a consumer is likely to pay, including any indirect fees or costs
- comparisons should only be made between financial products that have sufficiently similar features and about returns if the information used is current, complete and accurate
- if an advertisement discloses a rating, the rating used should be properly explained, including the rating scale and where an investor can obtain further information about the rating
- past performance information should be accompanied by a warning that past performance is not indicative of future performance, and forecasts about the future performance of a financial product should be based on reasonable assumptions and should also state that the forecasts are not guaranteed to occur
- terms and phrases should not be used in a particular way by industry where that is not consistent with the ordinary meaning commonly recognised by consumers (e.g. ‘free’, ‘secure’ and ‘guaranteed’)
- advertisements should be capable of being clearly understood by the audience that might reasonably be expected to see the advertisements
- advertisements should not state or imply that a financial product is suitable for particular types of consumers unless the promoter has assessed that the product is suitable for that class
- advertisements for complex products that are only appropriate for a limited group of people should not be targeted at a wider audience
- advertising content should be consistent with information contained in any disclosure document (such as a product disclosure statement or prospectus) or contracts
- photographs and images should be relevant and not contradict, detract from or reduce the prominence of any warnings, disclaimers or qualifications – graphical presentations should not be ambiguous or overly complicated
- advertisements for a financial advice service should not create unrealistic expectations about what the service can achieve.
The proposed regulatory guide is a statement of what financial service participants need to do to avoid their advertisements being misleading or deceptive and to ensure their advertising meets licensee conduct requirements of efficient, honest and fair conduct. This does not really change the regime under which financial services participants operate, but does show the regulator’s increased focus on advertising of financial products. It should be remembered, in addition to drawing the regulator’s attention and creating reputational risks, financial product advertising can lead to civil liability.
As such, to minimise the legal and reputational risks associated with financial product advertising that contravenes the Corporations Act, all advertisements should be reviewed to ensure that they meet the standards summarised in the proposed regulatory guide “Advertising financial products and advice services”.