Financial services firms that advertise the fact they have won industry awards could fall foul of the FSA’s financial promotion rules under recent guidance published by the regulator.
Final guidance published by the FSA on financial promotions, fund performance and image advertising says promoting award wins constitutes a declaration of past performance, if the award is based on performance, and should therefore conform to strict and restrictive rules.
Awards based on service are not affected by the guidance. However, the FSA says firms promoting awards judged on both service and performance, for instance, some adviser awards where portfolio performance is taken into account as part of the judging criteria, are likely to be affected. “We will look to apply this proportionately,” an FSA spokesman says.
Firms making past performance claims must adhere to strict rules including ensuring any such claims are not the most prominent feature of the communication. Past performance claims also have to include appropriate performance information for the last five years and a risk warning stating past performance is not a reliable indicator of future results.
The new guidance states: “The winning of awards can amount to an indication of past performance, depending on the context. As an example, if the award is for service or administration, then the requirements would not apply.
“On the other hand, an award that reflects the fund manager’s skill and expertise ultimately reflects the performance of the fund and the fund manager’s achievements and so trigger the requirements of Cobs 4.6.2R.”
Compliance consultant Adam Samuel says: “A ’fund manager of the year’ should not be expected to give five years’ worth of data for all its funds every time it mentions the award. Equally, the risk warning prescribed makes no sense for awards.
“The FSA has fudged the question of whether this requirement applies to IFA awards, which typically do not differentiate between the investment performance of their recommendations and service matters.”
Bestinvest senior investment adviser Adrian Lowcock says: “The need for performance figures restricts the ability to use an award in marketing material. I do not know many industries that prevent success and excellence from being congratulated.”