Post by lairezippert on Feb 29, 2020 22:03:15 GMT 4
The legal position in relation to promotional materials
Promotional material can be the content of your website, regulatory disclosure documents, print brochures, advertising (whether mass media or social media), client presentations, call centre scripting or direct mail campaigns.
The chief compliance considerations to keep in mind with promotional material are to avoid engaging in misleading or deceptive conduct and to avoid using restricted words. Other important considerations include rules regarding intellectual property rights and defamation laws.
Failure to meet these requirements can lead to unwanted attention from ASIC as well as the lawyers of disgruntled clients, competitors and copyright owners.
Misleading and deceptive conduct
Financial products and services are usually complex, difficult to understand and with uncertain risks and benefits. Accordingly, AFSL holders need to be aware of the overriding prohibitions on:
making false or misleading statements; and
engaging in misleading or deceptive conduct.
In the competition to attract the attention of potential clients the search is always on for the marketing strategy that carries the greatest impact. This can lead to issues with:
products and services being incorrectly described (especially in relation to risk and benefits);
products and services not being fit for the expressed purpose;
creating expectations that cannot be met;
comparisons with competing products and services;
celebrity and "satisfied customer" endorsements;
material information being omitted or not made sufficiently prominent.
For example, ASIC took action against a bank that advertised an 'everyday savings account' which had features that, in fact, made it less flexible than the name implied and more suitable for long term saving.
An advertisement's "headline" claim need not necessarily carry all relevant information with it as long as the full story is presented in a prominent and proximate manner. In this regard, the use of "fine print" disclosure, warnings and disclaimers is problematic as the Courts often find such items to be insufficiently prominent – with the consequence that they are legally ineffective.
An advertisement stating or implying that a particular result or positive outcome is likely, should also include an explanation of any assumptions made and disclosure of any uncertainty or risks associated with obtaining that result or outcome.
In the 2012 case of ASIC v Camelot Derivatives Pty Ltd, the Federal Court considered Camelot's promotion of an options trading strategy. Camelot's managing director made statements to the effect that clients had and could expect to earn significant returns from this strategy, which Camelot had substantial experience in implementing successfully. Unfortunately, the GFC intervened and between 2008 and 2010 many clients incurred significant losses. The Court found that Camelot's clients were induced to use the Camelot strategy by the representations that they could make significant profits through options trading. Camelot's conduct was misleading and deceptive because it did not adequately explain the risks involved, and did not explain clearly the potential for Camelot to make significant profits from brokerage on these transactions – while its clients made significant losses in the market.
Intellectual property rights and defamation
Quoting from research or other materials that support your product or service can be a powerful marketing tool. So too is the use of celebrity endorsements, lifestyle images, logos and music. It is likely that these materials will be the intellectual property of another person. If you use the intellectual property of another person without their permission you risk a claim for damages from the owner as well as reputational issues.
When you are using the words, names or images of other persons, check carefully whether you need to get permission from the owner. Always cite your sources if you are relying on technical analysis.
Further, if something you publish harms the reputation of someone else then that person can seek injunctions to prevent the publication and recover damages from you. Before you disparage a competitor's products or services, consider whether anything you plan to say reflects on their reputation in a way that makes it likely people will think less of them as a result.
Specific restrictions on financial services advertising
Surprisingly, the financial services laws contain little direct regulation of advertising. The main disclosure rules are:
to include a "general advice warning" if the advertisement contains general advice; and
if the advertisement refers to a financial product, how the PDS for that product can be obtained.
There are also prohibitions on the supply of unsolicited products and services and "bait" advertising.
The Top 12 Problem Words
Here are our top 12 problem words – all of which should only be used with great care.
'Independent', 'Unbiased', 'Impartial':
These words, and other words with similar meaning, are prohibited unless the user receives no commission or other volume-based remuneration, or any gifts or benefits from a financial product issuer that might be expected to influence its advice. This is a high bar to leap.
Contravening this requirement is an offence. Theoretically at least, it is also an offence to use these words in a negative sense (e.g. stating that you are not independent) – although we doubt if there is much usage in that manner.
'Bank', 'Stockbroker', 'Insurance Broker':
These words require particular authorisation to use from APRA (in the case of 'bank') and ASIC (in the case of stock, insurance or futures brokers).
'Free':
Probably the most misused word of all – which is not surprising given its marketing appeal. A service is not free if it is subsidised through other charges. For example:
Advice is not "'free" if it is paid for out of fees and costs of financial products clients are placed in as a result of the advice.
An SMSF trust deed is not "free" if clients must first enter into an administration contract with the provider.
In these situations it is better to describe the "free" product or service as being provided "at no extra cost".
'Safe', 'Secure', 'Guaranteed':
If you don't intend to cover any loss your client may incur, then avoid these words as they imply that you will. Be particularly wary of using "guaranteed" as it has a legal meaning which differs considerably from common usage.
'Easy', 'Simple':
ASIC considers financial investment to be complicated and tends to regard solutions labelled as being easy or simple as ignoring relevant considerations. For example, it is doubtful that ASIC would consider it to be acceptable for any financial product (perhaps other than a bank account) to be described as "simple".
It is important that AFSL holders have compliance procedures in place to ensure that promotional materials are reviewed prior to being issued and that they are reviewed regularly to ensure that they remain current.
Promotional material can be the content of your website, regulatory disclosure documents, print brochures, advertising (whether mass media or social media), client presentations, call centre scripting or direct mail campaigns.
The chief compliance considerations to keep in mind with promotional material are to avoid engaging in misleading or deceptive conduct and to avoid using restricted words. Other important considerations include rules regarding intellectual property rights and defamation laws.
Failure to meet these requirements can lead to unwanted attention from ASIC as well as the lawyers of disgruntled clients, competitors and copyright owners.
Misleading and deceptive conduct
Financial products and services are usually complex, difficult to understand and with uncertain risks and benefits. Accordingly, AFSL holders need to be aware of the overriding prohibitions on:
making false or misleading statements; and
engaging in misleading or deceptive conduct.
In the competition to attract the attention of potential clients the search is always on for the marketing strategy that carries the greatest impact. This can lead to issues with:
products and services being incorrectly described (especially in relation to risk and benefits);
products and services not being fit for the expressed purpose;
creating expectations that cannot be met;
comparisons with competing products and services;
celebrity and "satisfied customer" endorsements;
material information being omitted or not made sufficiently prominent.
For example, ASIC took action against a bank that advertised an 'everyday savings account' which had features that, in fact, made it less flexible than the name implied and more suitable for long term saving.
An advertisement's "headline" claim need not necessarily carry all relevant information with it as long as the full story is presented in a prominent and proximate manner. In this regard, the use of "fine print" disclosure, warnings and disclaimers is problematic as the Courts often find such items to be insufficiently prominent – with the consequence that they are legally ineffective.
An advertisement stating or implying that a particular result or positive outcome is likely, should also include an explanation of any assumptions made and disclosure of any uncertainty or risks associated with obtaining that result or outcome.
In the 2012 case of ASIC v Camelot Derivatives Pty Ltd, the Federal Court considered Camelot's promotion of an options trading strategy. Camelot's managing director made statements to the effect that clients had and could expect to earn significant returns from this strategy, which Camelot had substantial experience in implementing successfully. Unfortunately, the GFC intervened and between 2008 and 2010 many clients incurred significant losses. The Court found that Camelot's clients were induced to use the Camelot strategy by the representations that they could make significant profits through options trading. Camelot's conduct was misleading and deceptive because it did not adequately explain the risks involved, and did not explain clearly the potential for Camelot to make significant profits from brokerage on these transactions – while its clients made significant losses in the market.
Intellectual property rights and defamation
Quoting from research or other materials that support your product or service can be a powerful marketing tool. So too is the use of celebrity endorsements, lifestyle images, logos and music. It is likely that these materials will be the intellectual property of another person. If you use the intellectual property of another person without their permission you risk a claim for damages from the owner as well as reputational issues.
When you are using the words, names or images of other persons, check carefully whether you need to get permission from the owner. Always cite your sources if you are relying on technical analysis.
Further, if something you publish harms the reputation of someone else then that person can seek injunctions to prevent the publication and recover damages from you. Before you disparage a competitor's products or services, consider whether anything you plan to say reflects on their reputation in a way that makes it likely people will think less of them as a result.
Specific restrictions on financial services advertising
Surprisingly, the financial services laws contain little direct regulation of advertising. The main disclosure rules are:
to include a "general advice warning" if the advertisement contains general advice; and
if the advertisement refers to a financial product, how the PDS for that product can be obtained.
There are also prohibitions on the supply of unsolicited products and services and "bait" advertising.
The Top 12 Problem Words
Here are our top 12 problem words – all of which should only be used with great care.
'Independent', 'Unbiased', 'Impartial':
These words, and other words with similar meaning, are prohibited unless the user receives no commission or other volume-based remuneration, or any gifts or benefits from a financial product issuer that might be expected to influence its advice. This is a high bar to leap.
Contravening this requirement is an offence. Theoretically at least, it is also an offence to use these words in a negative sense (e.g. stating that you are not independent) – although we doubt if there is much usage in that manner.
'Bank', 'Stockbroker', 'Insurance Broker':
These words require particular authorisation to use from APRA (in the case of 'bank') and ASIC (in the case of stock, insurance or futures brokers).
'Free':
Probably the most misused word of all – which is not surprising given its marketing appeal. A service is not free if it is subsidised through other charges. For example:
Advice is not "'free" if it is paid for out of fees and costs of financial products clients are placed in as a result of the advice.
An SMSF trust deed is not "free" if clients must first enter into an administration contract with the provider.
In these situations it is better to describe the "free" product or service as being provided "at no extra cost".
'Safe', 'Secure', 'Guaranteed':
If you don't intend to cover any loss your client may incur, then avoid these words as they imply that you will. Be particularly wary of using "guaranteed" as it has a legal meaning which differs considerably from common usage.
'Easy', 'Simple':
ASIC considers financial investment to be complicated and tends to regard solutions labelled as being easy or simple as ignoring relevant considerations. For example, it is doubtful that ASIC would consider it to be acceptable for any financial product (perhaps other than a bank account) to be described as "simple".
It is important that AFSL holders have compliance procedures in place to ensure that promotional materials are reviewed prior to being issued and that they are reviewed regularly to ensure that they remain current.