In launching the rulebook, we challenged firms to use high-level principles to think hard about who is receiving their messages and what they need to know to help them choose the right product. But has the industry taken advantage of the greater flexibility offered? Has there been a seismic shift in how firms create and develop financial advertising for retail consumers?
The short answer is no, not yet. An intensive tracking study we have carried out since Cobs went live on November 1, 2007 reveals that standards have been maintained, which is good news. On the one hand, we have seen a dimly emergent landscape of good practice where some firms are prepared to take a few risks and, in doing so, raise standards overall. On the other, it appears that firms are only taking a cautious, limited advantage of the new rulebook.
Compliance still appears to be more of a bolt-on to the main promotion and so far there appears to be little real differentiation of approach based on consumer needs and knowledge.
Our study since November 1 focused on three key areas of risk posed by the new regime.
First, balance and understandability in the light of the removal of prescribed risk warnings and the potential for firms to allow standards to slip by excluding adequate explanations of risk.
Within this context, we also wanted to see how firms would take account of the new notions of sufficiency and average member of the group.
Second, we looked at the issue of past performance, and finally, direct offer.
This article describes some of our observations from the study and where we would like firms to move in terms of good practice.
Tom Waits wrote in his song, Step Right Up, on the dangers of bad consumer messages, “the large print giveth and the small print taketh away”.
To meet our criteria for balance, firms should avoid the risk sandwich – where old standard risk warnings are inserted between upbeat paragraphs in a way which is potentially confusing and certainly unhelpful to customers – and avoid the temptation to add in a plethora of regulatory clutter, relegating important risks to the small print.
Firms also need to consider the medium and the likely recipient of the message, how easy the product is to understand and avoid dilution of any risk warnings.
If it is a billboard, think hard about visibility. We have seen fund advertisements on motorways where the risk warnings and other essential information are microscopic and the motorists would cause a crash before he or she could read them.
Above all, firms should involve compliance at the start of the creative process to prevent it becoming a bolt-on and challenge themselves constantly with the question – is this advert fair, clear, and will your target consumer’s expectations be met by reality?
Understandability’Try to see it my way’ (The Beatles)
If you want to make sure that an advert for a retail client is fair, clear and not misleading, you really need to put yourself in the consumer’s shoes, consider what they would want or need to know – and convey it in a way that is meaningful for the audience.
For example, how and where the monies will be invested, what the risk is of not getting their money back or accessibility?
Would the target audience and likely recipients get a clear picture of the product from the information you are giving them?
Does the advert use financial jargon, or technical terms – such as leveraged – that are not explained or do not match the financial capability of the audience?
Are figures explained and put into a meaningful context? Is all the information relevant or are there unnecessary bolt-on statements such as a reference to currency risk, when this cannot arise?
Past performance’You’re simply the best’ (Tina Turner)
Past performance is an area where a degree of prescription remains. Our task here is to ensure the correct application of the detailed rules is balanced with other information so that a consumer is less likely to give undue weight to the numerical performance data alone and that good results are not cherrypicked by firms.
As you can see from the graphic which is published above right, past performance is not the most prominent aspect of the promotion. The risk warning is prominent and five years of data have been used in discrete 12-month periods.
Guidance remains in the FSA handbook which provides firms with a safe harbour if they follow it in respect of the numerical data. Deliberately, there is no safe harbour for the issue of prominence. This has to be your own judgment call, taking into account the size and positioning and other messages in the content.
Direct offer’Make me smile (come up and see me)’
In practice, the definition of a direct offer has not changed in Cobs, except for the fact that direct offers can now be unwritten – in “real time” – and may also relate to ancillary services.
It still refers to adverts which contain an offer or invitation to enter into an agreement and specify a means of response.
In many cases, consumers are directed to a website or a phone line. This is enough to make it a direct-offer financial promotion if, when they go to the website or phone in, they have the option of applying.
At the same time, the new rules for direct-offer financial promotions give firms more flexibility as to whether to include the required information in the advert itself or in a subsequent (or earlier) document that the client must refer to.
For non-advised sales, firms can supply retail clients with the required product information at any point in the sales process (including within the promotion) so long as it is provided in good time before the client responds and so long as the client must refer to it before responding.
Even if there is a number of individual promotions in a chain leading up to the purchase of a product, it is important to recognise that every advert in the process must be stand-alone compliant and meet our fair, clear and not misleading principle.
We do not want to see firms back-ending vital information – that is, saving it to the last or, for example, including it in the key features document, not least because our recent research into these demonstrated that many of these are imperfect documents (www.fsa.gov.uk/pubsother/ key_features.pdf
Cobs is vital for the industry and consumers – as is advertising
Marketing and advertising really matter to firms, and make a vital contribution to revenues.
According to The Little Book of Growth, from the Institute of Practitioners in Advertising, advertising adds around £160bn to the economy each year.
Crucially, it matters that it is good advertising, that risks are not downplayed or misrepresented and it should be fair, clear and not misleading.
Our continuing focus on principle-based regulation is intended to help with more innovation and higher standards in advertising, ultimately leading to the right product or service choices made by confident and informed consumers.