In late December 2003, the FSA announced that standardised data must be included in advertisements referring to past performance.
The new rules, which will come into force on June 1 2004, will prevent marketers firms "cherry-picking" data to present their past performance in the most flattering light.
The new rules for making claims in advertising:
Rule 1: Use of data
Where past performance information is used in advertisements, it must be accompanied by standardised data, set out in a table, showing discrete annual returns for the previous five years.
These figures must be expressed as a percentage and must give consumers a better understanding of the volatility of the investment and how it has performed over a period of time.
Rule 2: Performance and track record of advertiser under five years
Where less than five years' performance is available, then a marketer must give information for as many 12-month periods as possible, updated to the previous quarter.
In addition, marketers should indicate (using dashes or an explanation) where there is no information available for the "missing years".
Rule 3: Performance and track record of advertiser under 12 months
Where data is available for less than one 12-month period, past performance information may not be included.
This regulation is likely to have the greatest impact on marketing within financial services particularly in relation to new products or derivations of existing financial services products.
According to the FSA, claims as to performance of such products or funds under 12 months do not give a "clear, fair and not misleading" impression of longer term performance.
However, this type of marketing information will still be available to intermediaries and professionals, such as independent financial advisers because only advertisements aimed at retail investors are covered by the FSA's advertising rules.
Other regulatory changes to be introduced by the FSA on June 1
The standardisation measures described above form part of an overall package aimed at cleaning up the way in which past performance information is used in advertising.
Other changes for marketers to note include the following:
In the same way that the Data Protection Act 1998 and the EU Directive on Electronic Communications and Privacy (2003) codified marketing best practice, financial services marketers should seize the opportunity and get their own house in order rather than waiting to do so in six months' time only to run the risk of being non-compliant. You have been warned.
Ardi Kolah appears on the Chartered Institute of Marketing's global top 50 list of leading marketing thinkers. He is author of 'Essential Law for Marketers' (Butterworth Heinemann, £25.00). Read the review of the book on Brand Republic and order your copy online here.
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This article was first published on brandrepublic.com