ASIC’s ad intent clear but FoFA will be real test

The Australian Securities and Investments Commission (ASIC) is set to crack down on how financial products and services are advertised in what is looming as a trial run for how the regulator handles more complex financial reforms.

While ASIC guidance on Future of Financial Advice (FoFA) reforms is yet to be shaped by Parliament, the watchdog’s handling of how financial planners advertise is likely to be closely scrutinised by the industry.

“Ads that do not accurately represent the financial product or its key features and risks, or the nature and scope of financial advice, can create unrealistic expectations that lead to poor financial decisions,” ASIC Commissioner Peter Kell said at the release of a regulatory guide on advertising for financial products and advice services (RG 234).

“It is important that ads are clear, accurate and balanced, especially when consumers are looking for lower risk products in an uncertain global financial environment.”

Since July 2010, ASIC’s actions have resulted in 117 advertisements across the financial services sector being withdrawn or remedied in response to concerns about poor practices and potentially misleading or deceptive conduct.

Clarify your information
While warning of stronger penalties than ever before for those “bad apples” seeking to mislead consumers, it is clear that Kell is concerned with a far bigger picture.

“A key lesson from the last few years is that a proactive regulatory approach improves market resilience and reduces the risk of investor losses compared to reactive regulation,” he told an Association of Superannuation Funds of Australia (ASFA) New South Wales briefing earlier this week.

“A more proactive approach, one that focuses on emerging risks, can obtain better results for consumers and the industry as a whole, compared to enforcement action against a wrongdoer after the damage has been done.”

Advertising claims such as “guaranteed”, “secure” and “protected” are most likely to draw the watchdog’s gaze and an invitation to justify the terminology used.

Most recently, ASIC has taken action in relation to marketing that described geared investment strategies as “stress-free” while warning advertisers of products such as contract for difference derivatives (CFDs) to avoid claims such as “low risk trading” or terms such as “safe”.

Most in the industry will welcome the regulator’s insistence on clear, accurate and balanced information about a financial product or service, especially given the role accurate advertising can play in driving competition.

Deliberate misleaders beware
However, many in the industry will be watching how ASIC uses the new powers it and other regulators have recently been given in this area, especially in issuing infringement and public warning notices and penalties through the courts of up to $1.1 million for each breach.

Technically ASIC has the ability to grant relief from the law in certain cases but, as Kell pointed out at “The Final Countdown”, a roundtable discussion convened by Professional Planner last month, “it would be desirable, I agree, not to have a situation where you’re wanting to exempt the entire industry for some extended period of time”.

“We will take a facilitative approach with the implementation of FoFA,” he said.

“What that means is that we will ensure that as far as possible, we help people transition to the new regime. If there are inadvertent or systems- type errors that can be rectified quickly, we’re not going to come down hard and heavy on that. We’re not going to seek and destroy. But we will seek to take a facilitative approach and only take action when there is clear and deliberate misleading sort of conduct.”