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FSA relents on fund firms&#39 performance advertising

Past performance would be allowed to be the dominant feature in fund advertising but only in an FSA-standardised format, according to draft FSA proposals seen by Money Marketing.

Ads would not be allowed to use sums of money invested to illustrate returns because the FSA feels consumers would pay too much attention to them.

FSA plans to increase the prominence of risk warnings appear to have been shelved.

Fund companies would be permitted to use other styles of presenting past performance as long as this did not overshadow the standardised material and was presented in a “clear, fair and not misleading” manner. Past performance information illustrated by five-year discrete annual returns expressed as a percentage could be the most prominent feature of ads, according to the current draft.

The proposals would mark a significant turn-round for the FSA which proposed preventing past performance from being the predominant feature of ads and for risk warnings to be included in the main text of ads in CP132 last April.

There is no mention in the draft consultation paper of risk warnings in the main text.

The prominent use of past performance is justified in the paper because the regulator argues that it would be displayed in a standardised way.

Using deposit-based benchmarks for equity-based products would also be frowned upon but the paper does not go so far as to suggest banning it outright.

The consultation paper is expected to be publish-ed in April or May alongside a feedback statement on the proposals which were outlined in CP132.

Fidelity executive director Paul Kafka says: “We have argued all along that a standardised format for presenting past performance would be the best way to give investors important information in a way they can understand and put to good use.”

Henderson head of UK retail Simon Ellis says: “It is good that there is a standardised format and it is welcome they are recognising the importance of the use of past performance in advertising.”

FSA spokesman Rob McIvor says: “I am not going to comment on a consultation paper that we have not published yet. For people to be saying what is in it strikes me as wishful thinking.”

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