The FSA taskforce on the use of past performance statistics in advertising has finally produced its conclusions after almost a year of talk.
For IFAs and product providers, the big question was whether the FSA would ban them from using performance data in their ads. But while this was not among the eventual proposals, the report has still faced a barrage of criticism from the industry. Many have labelled its proposals as impractical and potentially misleading to the consumer.
The principal suggestion from the report is that, if past performance figures are used, they should be displayed in a standardised format to prevent firms manipulating them to their own advantage. This is not a point of contention and, indeed, is supported by most fund managers.
Many have referred the FSA to the US system, where fund managers can display only fiveand 10-year performance figures, which appears to have achieved all the UK regulator is looking for here.
But the report's suggestion to create standardised measures of other less tangible variables such as risk is seen by many within the industry to be impractical and likely to cause confusion to consumers.
Fidelity was the first fund management company to make its feelings known in a scathing report presented to both the FSA and the media.
Executive director Paul Kafka says: “Past performance data is factual information, risk is subjective, so a standard risk indicator will be virtually impossible to achieve. Many firms apply risk ratings to their own funds but an industrywide measure will prove to be a Holy Grail.”
Fidelity also disagrees with the taskforce's suggestion that past performance should not be at the centre of any advertising. With the FSA's own consumer survey reinforcing the fact that investors want to see past performance figures – and will in many cases search for them elsewhere if they are omitted from ads – Fidelity says the FSA would be overprescriptive and nannyish to implement such an idea.
Marketing director David Cowdell says: “The report accepts that past performance figures are in demand but goes on to shroud all of that in a whole list of suggestions which will make it more confusing. The report was wishy-washy and its whole approach is simplistic.”
From the IFA's perspective, at least, the debate has been very healthy, sparking widespread statements of support for the intermediary community from product providers.
Aberdeen Asset Management managing director Gary Marshall believes the simplistic tone of the report ignores the important role IFAs have to play. He argues that trying to encompass all factors from risk to past performance in simple measures will only be misleading to investors. He points out that more complex information such as risk levels can be ascertained from an adviser.
Marshall says: “You almost cut out the adviser by trying to capture everything in one measure. The adviser is there to carry out the analysis which is not in the adverts.”
He points out that investments are inherently complex products which are already difficult to advertise. If too many heavy constraints are placed on providers, he claims that ads will become increasingly ineffective and work against the FSA and Treasury's objective of creating a robust savings and investment culture.
The question now is what will happen next – the answer to which is likely to be not very much. In taking a year to deliver its paper, the FSA's past performance taskforce has epitomised the regulator's bureaucratic culture. It will now take several months for the FSA to decide which points it likes and to draft and publish a consultation paper.
While the industry is calling for quick action, it seems unlikely that anything will happen in time for the barrage of Isa season advertising in January, February and March. Furthermore, it would seem that the consultation process will be no smooth ride. This summer, Skandia lobbied the FSA on its stance on past performance. Now it would seem that investment heavyweight Fidelity is also throwing its hat into the ring.
IFAs will perhaps be grateful for the delay. The one result which the IFA community would like to have arisen from the advertising debate was a greater endorsement that advice is important. With the strength of Skandia and Fidelity behind such a cause, there may still be hope.
Plan Invest joint managing director Mike Owen says: “It is a shame they cannot say these are complex investments and that you should take advice before buying them. They seem to want to encourage a DIY culture but, in doing that, you have to be very careful in what you give the investor.”
Owen believes the FSA's problem is that it has tried to achieve too much with this review. Most people in the industry do not believe the current advertising rules are fundamentally flawed. The regulations may be in need of some minor tinkering but a full-scale overhaul would seem to be a waste of time and resources.