FMA Issues Guidance on Advertising Financial Products

In recent times the Financial Markets Authority (FMA) has been engaged in a concerted effort to facilitate conduct by financial operators that actively assists investors to make appropriate and considered decisions about accepting offers of financial products and services. As part of this effort, last week the FMA issued a Guidance Note that explains the approach the FMA will take when considering whether advertising of financial products complies with the fair dealing provisions and disclosure requirements of the Financial Markets Conduct Act (FMCA).

The Guidance Note applies to offers of all kinds of “financial products” – debt securities, equity securities, managed investment products and derivatives. It includes all forms of advertising from traditional media to internet mediums, including search tools and “forums” such as social media, including posts by influencers. The advertisement need not even mention a specific product, for example if it promotes an issuer who is planning on making an offer.

The Guidance Note sets out three key advertising principles:

1. Its about the overall impression. The FMA will consider the holistic impression made when viewed by the audience actually reached (not just the intended audience) when viewing the advertisement for the first time. It will be assumed that the audience is “neither unusually astute or unusually gullible”.
2. Omissions can be counted as misleading, deceptive or confusing. The full picture should be presented rather than the advertisement ‘cherry picking’ certain information.
3. Claims must be substantiated. Claims must have a reasonable basis at the time they are made and be supported by evidence. A claim may still be considered unsubstantiated even if it later turns out to be true.

The Guidance Note also formalises the standards and guidelines regarding advertisements of financial products that were previously issued in an earlier consultation draft, including that:

• Advertising must be truthful and accurate;
• Advertising must balance risk and reward;
• Warnings and disclaimers should be prominent;
• Fees and costs must be clearly disclosed. Particular care should be taken with “no fees” claims as, if the issuer makes money from the product, it could be false or misleading.

The Guidance Note specifically addresses advertising historical investment returns. In particular, the FMA says that advertising the performance of financial products for periods of less than 12 months should be avoided, and additional information on the context of the performance period should be presented. This reflects an earlier warning about advertising pre-Covid returns.

In light of this Guidance Note, financial operators should consider whether their existing and proposed advertising is in line with the expectations of the FMA.