Truthin advertising may be a contradiction in terms, but that has not stopped the Australian Securities and Investments Commission (ASIC), which last week released a paper on the use of past performance figures in the promotion of financial services products.
The paper included a number of draft guidelines on how past performance information should be used in financial services advertising, including that hypothetical or simulated past performance figures should not be used in ads and that undue prominence should not be given in promotional material to past performance information.
The release of the paper comes almost a year since ASIC first mooted its crackdown on the use of past performance figures in advertisements.
At the time, the watchdog forced the AXA group to terminate or modify a series of print and television advertisements after finding the group did not disclose in the ads that past-performance figures were purely hypothetical and not actual past returns.
But more importantly, the release of the paper comes just one week after ASIC released the Ramsay report on the disclosure of fees and charges by financial services providers.
The report made a number of key recommendations, including that product disclosure statements (PDSs) should include standardised descriptions of fees, separate disclosure of administration and investment fees, and disclosure of fees paid to advisers.
Taken together, the two reports signal that ASIC has a very clear idea of how it wants financial services providers to present information at the point where it comes into contact with consumers — whether that is through a 30 second television commercial or a more formal PDS or prospectus.
The two reports contain, at this stage, just draft guidelines and recommendations.
However, it is abundantly clear that ASIC expects many of the recommendations and guidelines to be adopted, preferably as part of the industry’s own self-regulation of the information it presents to consumers.
If they are not, then no-one should be under the illusion that ASIC will not enforce its proposals through regulatory or legislative means.
What’s more, ASIC has the mandate to do it.
With investment markets the way they are, and with corporate scandals dominating the headlines throughout the past year, regulators like ASIC are unlikely to have trouble finding the support they need to introduce measures designed to protect consumers.
In a nutshell, the prevailing economic and market conditions have conspired to perhaps finally give ASIC the teeth it always desired.
Financial services providers should not be afraid, but they have been warned.
