Making a claim? Prove it
Research and analysis will become more important for advisers under new changes to the Fair Trading Act.
Monday, August 18th 2014, 6:00AM 
3 Comments
by Susan Edmunds
The new section of the Act came into force on June 17 this year.
It means that if advisers make a claim they can’t substantiate – even if it is true – they breach the law.
“If you say one product is better than another, you have to substantiate that,” David Ireland, of Kensington Swan, said. “Even if the product is actually better, if you weren’t able to substantiate it, you’d be in breach of your Fair Trading Act obligations. That’s the sting in the tail.”
Advisers could use rating agencies or research houses to help, he said.
It was something that was likely to get more regulatory attention. Investment advisers could be caught under either the Financial Markets Conduct Act or the Fair Trading Act.
“So it is now more than just slack practice to operate more by good luck than good measure – it’s a statutory offence. In essence, with limited exceptions, if you can’t substantiate something you allege when giving advice, even if it turns out to be true and no deception was involved, you have breached the law."
He said the main exception was when a reasonable person would not expect a claim to be substantiated.
That was unlikely to apply for advisers telling clients one product was better than another.
“So when comparing products, I think it’s fair to say the law now expressly requires advisers to be able to point to a reasonable level of analysis of the products in question having been conducted, either by themselves or by someone else it was reasonable to rely upon.”
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Comments from our readers
That is pretty fundamental stuff - and was the law before this amendment anyway because of advisors' various other duties of care. I would hope that very few advisors would have an issue with this.
This law applies to all business, not just this industry and in effect flips the burden of proof around from an allegation based, reactionary basis to a burden of responsibility basis.
In the past you can easily imagine the possibility of an advert making bold claims about a product or service that are then challenged, and subsequently the advertiser "finding" some evidence to defend their claims. Now, you must be able to back your claims before you make them.
For example, let’s look at someone making bold claims about fees and pension fund investment styles that our esteemed correspondent continually, repeatedly, nay, incessantly goes on about. If one has solid, reliable data based on which one can make claims in giving advice then fine. Keep calm and carry on. The new stupid ass law simply requires that one must in fact have the basis for their statement prior to stating it, rather than carry out "research" to support and/or defend their statement after someone challenges it.
For most this should mean business as usual. For consumers this will mean more confidence, and fairer, more efficient and transparent markets - ironic the FMA can't take the credit for it huh? There has never been a more powerful anti-churn law before this, or one more capable of dealing with the promotion of, shall we say, ambitious investment schemes.
The only ass here is the opponent to the law change. If one is so sad about "our industry" one might not continue to be part of it, though when one makes a fairly good living....
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