News & Thinking
How not to advertise financial products
Financial advertising is pretty depressing these days. A lot of it is helpful – banks proactively communicating hardship options, fund managers explaining market movements, advisers trying to help investors make the right decisions (or avoid bad ones).
But some of it is a little more questionable. So – what are the legal rules, and how can you avoid falling foul?
In this article, I talk about three general sets of advertising rules:
- fair dealings rules in the Financial Markets Conduct Act 2013
- lender responsibility principles under the Credit Contracts and Consumer Finance Act 2003
- the Advertising Standards Authority’s Code for Financial Advertising.
Fair dealings rules
The Financial Markets Conduct Act’s fair dealings rules apply to most financial products and financial services. They are, in effect, the Fair Trading Act for financial services, and they are first port of call for financial advertising.
The key requirements are not to engage in misleading or deceptive conduct, and not to make false or misleading statements. In essence: don’t lie, and don’t hide anything important. The rules go on to specify certain matters that are prohibited (for example, falsely representing any particular sponsorship, approval, endorsement, or affiliation), but the basic rule is fairly well understood and you don’t normally need to look any further.
There are some extra rules that are worth remembering. For example, it is unlawful to make an unsubstantiated representation. Someone does this if they don’t have reasonable grounds for making a statement, even if the statement is not false or misleading. The rules also limit unsolicited offers of financial products in meetings or phone calls, in some circumstances.
In a recent example of advertising that obviously breached the fair dealing rules, an insurance adviser agreed – at the Financial Markets Authority’s request – to remove WeChat advertorials that created the impression that health insurance is needed to cover testing and treatment for COVID-19.
Lender responsibly principles
Those providing consumer credit (such as banks and finance companies) need to comply with lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003. Most of the principles cover conduct in lending generally (not the subject of this article), but some cover advertising.
Like the fair dealings rules, the lender responsibility principles require a lender to ensure advertising is not misleading, deceptive, or confusing. However, the lender responsibility principles go further by requiring lenders to “exercise the care, diligence and skill of a responsible lender” when advertising.
The Responsible Lending Code includes extensive guidance and commentary on advertising practices. By and large these cover detailed matters like properly explaining interest rates and not giving unrealistic impressions of fees and costs. However, the guidance also restricts a lender claiming they won’t enquire into a borrower’s circumstances (“no credit checks!”) or take their circumstances into account (“bankrupt – ok!”).
In August 2019, the Commerce Commission commenced High Court proceedings against Quadsaa Pty Ltd (trading as Pretty Penny and PPL) alleging it breached the lender responsibility principles, including in text, email, radio and internet advertising. The matter remains before the Court.
Code for financial advertising
The Advertising Standards Authority’s Code for Financial Advertising includes two principles:
- Financial advertisements should observe a high standard of social responsibility particularly as consumers often rely on such products and services for their financial security.
- Advertisements should strictly observe the basic tenets of truth and clarity. Advertisements should not or should not be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge or without justifiable reason, play on fear. This includes by implication, omission, ambiguity, exaggerated claim or hyperbole.
Various guidelines sit under these principles. These state, for example, that advertisements must be readily understandable by their intended audience, include all relevant information, and only include claims that are accurate and capable of substantiation. Adding to this, advertisements for investments must not imply that investments are safe or free from risk, or use unrepresentative examples of past performance.
In 2019, two complaints relating to AMP’s “is it me” KiwiSaver advertising campaign were upheld. The campaign was designed to encourage default KiwiSaver scheme members to make an active fund choice, and directed listeners to a website where they could check their status. However, the website only checked whether a person was in AMP’s default KiwiSaver scheme. The complaints board considered this limitation was unclear from the advertising, meaning the advertising was misleading and did not meet the required high standard of social responsibility.
In 2015, a complaint about Facebook advertising by property investment advisory firm Newland Burling & Co was upheld. Newland circulated a Facebook ad containing various statements about declining yields on commercial property that were found to be contradictory and confusing.
What does this all mean?
Advertising compliance is often just common sense. If you feel like something is pushing the limits, it probably is. If you can’t back up what you want to say, don’t say it. Having said that, there is a lot of grey and there is a strong case for legal compliance reviews of advertising, particularly for new campaigns, novel material, or higher risk content.
Depending on the size and sophistication of an organisation it can also be a good idea to have an advertising compliance checklist and approval process. These cover general principles, like those mentioned in this article, relevant industry codes of conduct and similar, and the specific rules for certain content (such as offers of financial products, and advertisements for financial advice).