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FMA Issues Guidance On Advertising Of Financial Products

The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko has issued new guidance on how firms should be advertising financial products.

The regulator consulted on proposed guidance on advertising last year. The final guidance, published today, reflects feedback from consultation and sets out three key principles for organisations to consider when advertising financial products or services:

  1. What is the overall impression created by the advertisement when viewed for the first time?

3 things consumers should look for

If an advertisement for a financial offer catches your eye (or ear), ask yourself:

  1. What does the advertisement say about the risk? Advertisements of high-risk investments do not always state that they are higher risk.
  2. If the firm is promising a certain rate of return, what is the basis for this? Are they promoting the product based on previous good performance? Past performance should not be the most prominent feature.
  3. Does the advertisement present a balanced view of the investment? What are they not saying?

More information for investors: Misleading advertising of financial products

  1. Ensure the advertisement includes all relevant information, as omissions can be misleading, deceptive or confusing
  2. Any claims in the advertising must be substantiated.

The guidance specifies that advertisements should:

  • be truthful and accurate;
  • take care when comparing different products;
  • balance risk and reward;
  • take care with phrasing and jargon;
  • ensure forecasts are based on reasonable and supportable assumptions;
  • not overemphasise performance;
  • prominently display warnings and disclaimers;
  • clearly disclose fees and costs;
  • not claim to be endorsed, approved or regulated;
  • be discernible from other content (such as sponsored content); and
  • clearly state that offers made to wholesale investors are not available to retail investors.

Liam Mason, FMA General Counsel, said: “Advertising can significantly influence people’s investment decision making, so it’s critical that firms’ marketing materials don’t mislead or confuse consumers.”

The FMA encourages market participants to follow the principles set out in this guidance and also to consider how their conduct actively assists investors to make appropriate and considered investment decisions.

“We want firms to provide a balanced message so the overall impressions and expectations formed by investors are realistic. For example, advertisements must not state, imply, or otherwise give the impression that a financial product is safe or free from risk, or returns are guaranteed where this is not or cannot be substantiated,” Mr Mason said.

“In all aspects of the advertising, substantiating your claims is paramount. This means having a reasonable basis for the representation when it is made. Anecdotal evidence, unsupported opinions and assumptions do not constitute a reasonable basis. We are particularly interested in representations in advertisements regarding the nature, suitability and characteristics of a financial product.”

The guidance acknowledges that the format of some advertising is limited or restricted (such as social media tiles or banner advertisements on webpages). This constrains the disclosure information that can be displayed, and firms often hyperlink to a landing page with required disclosure information. The FMA expects firms to ensure “click through” ads don’t create a misleading impression, the messaging in both the initial ad and landing page must be consistent, and all required disclosures should be well displayed on the landing page. For example, it is not acceptable for the landing page to omit the required disclosures and simply invite an investor to fill out a form to receive more information.

As well as traditional advertising mediums in print, broadcast, digital and outdoor formats, the guidance also applies to social media, seminars, newsletters, product brochures and promotional fact sheets, direct mail (e.g. written letters or email), group presentations and seminars, and advertorials, among other formats.

The guidance focuses on how ‘fair dealing’ requirements in the Financial Markets Conduct Act (FMC Act) apply to advertisements for financial products. Fair dealing provisions apply broadly to conduct relating to anyone (regardless of where they are based) offering financial products to the New Zealand public; they prohibit:

  • misleading or deceptive conduct, including conduct which is likely to mislead or deceive;
  • false, misleading or unsubstantiated representations; and
  • offers of financial products in the course of unsolicited meetings.

As the fair dealing provisions are long established within the 2014 FMC Act, firms are expected to take immediate steps to ensure their advertising is consistent with the law. The FMA expects firms to ensure their current marketing practices and campaigns are in line with the final guidance over the next two months. Where there are any examples of marketing that takes advantage of vulnerable customers in the current COVID situation, the FMA will take action.

As well as enforcement powers under the fair dealing provisions, the guidance notes the FMA can use regulatory tools, such as a stop order or direction order, to promptly take action against advertising that may confuse or mislead consumers.

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