As the FSA looks to begin regulating financial advertising more intensively, many in the industry are questioning the directions and choices that the regulator seems to be taking.
Last week, the FSA's new business plan announced the formation of a new department. It plans to hire 20-30 staff from the financial services and advertising industries and to set up a hotline to encourage the public to report any advertising that causes concern.
But FSA spokesman Rob McIvor says the new resources will not be used to pre-vet financial advertising and the FSA says that would be a “bridge too far”.
The concept of pre-vetting has been popular in some circles in the industry and at one stage last year it seemed that the regulator had made a commitment to scrutinise advertising. At a Treasury select committee hearing in October last year, LibDem MP Norman Lamb produced a letter written by FSA director of investment firms David Kenmir saying the FSA would pre-vet structured product marketing.
When Lamb demanded to know why the plan had not been carried out, FSA chairman Callum McCarthy said the letter had been sent to the MP in “good faith” but the regulator had subsequently decided to change its policy on vetting literature.
In the letter, dated April 10, Kenmir said: “We have therefore decided to ask all firms producing brochures on these products in future to submit their advertisements to us before releasing them to the public, at least for a short period. We also intend to sample some of the direct-offer financial promotions of the IFAs who sell these products and we are also reviewing some marketing material related to products which are now maturing.”
The FSA decided against the move because it would tie up resources and it would prefer company management to take responsibility.
At the October meeting, FSA chief executive John Tiner told the select committee: “We do not pre-vet advertising material and the decision that was made was that we want management to take more responsibility for this.”
However, now the FSA seems to be admitting it does need to look more closely at firms by building its resources in this area yet it is still insisting it will not vet advertising. Instead, the new department – which is looking for a head from within the industry – will concentrate on guiding firms.
Rob McIvor says the regulator's new head of department will work more closely with firms to help them understand how to keep their advertising in line with regulation aimed at protecting the consumer from misselling.
He says the department will look at the marketing strategies of financial services companies and set in place systems and services that will “help the industry to prevent misselling from advertising material”.
News of the development follows the £165,000 fine dished out to IFA Chase de Vere Financial Solutions last month and network DBS Financial Manage-ment's £100,000 fine last March, both for sending misleading promotions to prospective investors.
McIvor says: “Pre-vetting financial advertising is not something we intend to do but we are looking to use this department to help the industry understand how to produce compliant advertising and prevent misselling.”
Consumers' Association senior policy adviser Mick McAteer is pleased that the FSA is setting up a new department solely for the purpose of looking at financial services advertising but is not convinced this policy will last saying inevitably the FSA will have to pre-vet.
McAteer says: “There is a lot of evidence that suggests once a consumer has been hooked on a product because of advertising and marketing they are very unlikely to change their minds, no matter what advice they are given.”
He accuses the industry of putting a lot of time and effort into working out how to “bait and trap” the consumer.
He says: “A lot of damage has been done already at we welcome the FSA's move to look at this more closely. They may honestly believe they can relieve this problem through education and guidance but they will learn through experience they will have to pre-vet financial services advertising.
“I am sure that they hope this approach will make firms change their ways but that sort of touchy-feely approach has never worked in the past.”
Financial services advertising specialist CCHM director Lucien Camp has seen a growing trend in the FSA to interfere in the industry's advertising and says he “finds it pretty much impossible to understand why they have this fascination”.
He considers that the only significant advertising scandal that the industry has seen was with stakeholder pensions, which was a campaign run by the Government.
Camp says: “The FSA is on a crusade to degrade and destruct advertising in this industry.”
Unsurprisingly, Camp is against the concept of pre-vetting advertising and he points out that the FSA's growing pre-occupation with advertising is putting the industry between a “rock and a hard place”.
He considers that pre-vetting makes the advertising production process slow and stops ads from being topical or connected to events but says that, in many respects, pre-vetting would be better for the industry than post-vetting.
He says: “What is better? A traffic warden telling you not to park on the street because you will get a fine or a traffic warden putting a ticket on your windscreen?”