ASIC moves on past performance figures
TheAustralian Securities and Investments Commission(ASIC) says the use of past performance figures in advertising should include a five year return figure, be calculated after the deduction of on-going fees and not make use of simulated figures.
The announcement was part of a discussion paper covering usage of past performance information in advertisements and promotional material.
The regulator also says past performance figures should be up to date, not given excess prominence in advertising and balanced with information outlining the risks of investing within the product.
While the proposals - contained within a draft guide - are open to comments until mid-November, ASIC executive director of consumer protection Peter Kell says the regulator would take action if it felt that past performance information would mislead consumers.
“Past performance information is widely used in marketing by the financial services industry so it is important that consumers see information that will assist their decision about making investments. ASIC wishes to ensure that past performance information is used responsibly in advertising and is not misleading,” Kell says.
“An undue emphasis on past returns can lead to consumers having unrealistic expectations and making poor investment decisions.”
In the course of drafting the discussion paper, ASIC says it has found a majority of ads for managed funds make use of past performance data in a prominent way but this usually only covers short periods, such as one year, which ASIC says are unrepresentative.
The regulator also says academic research shows this type of information is a “weak and unreliable predictor of future performance over the medium to long term” and the various ways in which the information is used make it difficult to compare figures and leaves out important information.
ASIC’s discussion paper is the result of a lengthy process which began in January of this year after a number of complaints about the use of past performance information.
It also follows on from action it took against theAXA Asia Pacific Groupwhich was forced to terminate or modify a series of print and television advertisements after ASIC deemed the use of past performance figures in the ads to be misleading.
AUTHOR
Jason Spits
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
