FMA keeps watch on advertising rulebreakers

If it looks too good to be true, it probably is and the FMA wants to make sure you do the right thing by your customers and clients releasing a new guide for the advertising of financial products.

Thursday, October 14th 2021, 10:54AM

by Matthew Martin

Liam Mason.

The Financial Markets Authority (FMA) has issued new guidance focusing on how the fair dealing requirements of the Financial Markets Conduct Act (FMC Act) apply to advertisements for financial products after consultation with the industry last year.

The FMA expects firms to ensure their current marketing practices and campaigns are in line with the final guidance over the next two months and where there are any examples of marketing that takes advantage of vulnerable customers in the current Covid-19 situation, the FMA will take action.

The guidance sets out three key principles for organisations to consider when advertising financial products or services:

1. What is the overall impression created by the advertisement when viewed for the first time?

2. Ensure the advertisement includes all relevant information, as omissions can be misleading, deceptive or confusing

3. Any claims in the advertising must be substantiated.

“Advertising can significantly influence people’s investment decision making, so it’s critical that a firms marketing materials don’t mislead or confuse consumers," FMA general counsel Liam Mason says.

The FMA encourages market participants to follow the principles set out in the guidance and also to consider how their conduct actively assists investors to make appropriate and considered investment decisions.

The guidance specifies that advertisements should:

- be truthful and accurate;
- take care when comparing different products;
- balance risk and reward;
- take care with phrasing and jargon;
- ensure forecasts are based on reasonable and supportable assumptions;
- not overemphasise performance;
- prominently display warnings and disclaimers;
- clearly disclose fees and costs;
- not claim to be endorsed, approved or regulated;
- be discernible from other content (such as sponsored content); and
- clearly state that offers made to wholesale investors are not available to retail investors.

“We want firms to provide a balanced message so the overall impressions and expectations formed by investors are realistic," Mason says.

"For example, advertisements must not state, imply, or otherwise give the impression that a financial product is safe or free from risk, or returns are guaranteed where this is not or cannot be substantiated."

Mason says substantiating claims is paramount and means businesses must have a reasonable basis for the representation when it is made.

Anecdotal evidence, unsupported opinions and assumptions do not constitute a reasonable basis.

"We are particularly interested in representations in advertisements regarding the nature, suitability and characteristics of a financial product.”

It also means that some advertising should be limited or restricted, such as social media tiles or banner advertisements on web pages.

These constrain the amount of disclosure information that can be displayed and firms often hyperlink to a landing page with required disclosure information.

The FMA expects firms to ensure “click-through” ads don’t create a misleading impression, the messaging in both the initial ad and landing page must be consistent, and all required disclosures should be well displayed on the landing page.

For example, it is not acceptable for the landing page to omit the required disclosures and simply invite an investor to fill out a form to receive more information.

As well as traditional advertising mediums the guidance also applies to social media, seminars, newsletters, product brochures and promotional fact sheets, direct mail (e.g. written letters or email), group presentations and seminars, and advertorials.

Fair dealing provisions apply to anyone, regardless of where they are based, offering financial products to the New Zealand public and prohibit:

- misleading or deceptive conduct, including conduct which is likely to mislead or deceive;
- false, misleading or unsubstantiated representations; and
- offers of financial products in the course of unsolicited meetings.

As well as enforcement powers under the fair dealing provisions, the guidance notes the FMA can use regulatory tools, such as a stop order or direction order, to promptly take action against advertising that may confuse or mislead consumers.

Tags: Financial Markets Conduct Act FMA guidance Liam Mason regulation