Problem words for promotional material
Using the wrong words in promotional material can land any business in hot water. David Court looks at the top 12 promotional problem words in financial services.
Whatever your financial services business model, you are legally responsible for the content of the promotional material that you publish or otherwise make available in the public arena. In this article we look at the general principles covering promotional materials together with a number of particular words, the use of which is either restricted or likely to raise legal and regulatory concerns.
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 the Australian Securities and Investments Commission (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, providers of financial services 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; and
- 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 result 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 Global Financial Crisis (GFC) intervened, and between 2008 and 201, 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 product disclosure statement (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
In addition to the general principles described above, there are a number of particular words that attract their own degree of risk or attract the attention of regulators. 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 — although somewhat easier following the future of financial advice (FOFA) changes prohibiting the receipt of conflicted remuneration.
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 the Australian Prudential and Regulation Authority (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; and
- 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".
David Court is a partner at Holley Nethercote Commercial and Financial Services Lawyers.
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