Know when financial marketing crosses the line

Published Feb 23, 2023



The Advertising Regulatory Board recently introduced a section in its Code of Advertising Practice on the marketing of crypto assets. Strangely, the code does not have much to say on the marketing of regular financial products, but the section on crypto is quite detailed. It reflects another, broader, code, which marketers of all financial products need to take far more seriously, in my view, and which you, as a consumer of financial products, should be aware of: the General Code of Conduct for financial services providers under the Financial Advisory and Intermediary Services (Fais) Act. If consumers were more active in complaining about misleading advertising, product providers would be far more circumspect about crossing the line, which, in my opinion, they do frequently.

One example is the insurer’s boast, which goes something like this: “Get up to R5 million in life cover, from only R200 a month.” The phrase conflates the minimum monthly premium with the maximum amount of cover, and never the twain shall meet in a single policy. In all likelihood R200 a month will get you only a few hundred thousand rands in cover if you’re healthy and under the age of 25.

Another example is the ongoing “abuse” of interest rates by institutions offering interest-bearing investments, which I have written about a number of times.

The only way to compare interest rates is to use the standard measure, the compound annual growth rate (CAGR): this is the rate at which your money will grow annually, giving you a compounded return if you reinvest the interest. But providers have twigged onto the fact that you can seduce consumers with a more attractive higher rate if you compound the interest over, say five years, and then divide that by five. A CAGR of 10%, for example, is presented as a non-CAGR simple annual rate of 12%, but would you know that if it wasn’t pointed out to you?

It’s not only mainstream media advertising that can be misleading; it can be investment information that is factual but is presented in a biased way. Take the average fund fact sheet, now known as a minimum disclosure document, or MDD. Most show a graph of the fund’s performance since inception against the fund’s benchmark, such as a market index. Typically one sees increasing divergence between the fund and the benchmark in the fund’s favour.

I have two problems with this: first, it shows a compounding return, with growth and distributions reinvested, giving you an exponential curve that can mask periods of poor performance; and second, the graph applies only to an investment made at inception – if you invested more recently, the curve might look decidedly different.

A far more realistic performance graph is one that plots rolling one-year returns, but it’s very rarely you’ll see one of those, because it gives you a warts-and-all picture.

I digress. Let’s first look at the ARB’s crypto code and then at the marketing section in the Fais General Code of Conduct.

Crypto code

According to a recent article in Norton Rose Fulbright’s weekly newsletter by the law firm’s head of technology and innovation, Nerushka Bowan, advertisements for crypto assets must:

  • Expressly and clearly state that investing in crypto assets may result in the loss of capital. The overall message of the advertisement must not contradict this warning.
  • Explain the product or service in a way that is easily understandable for the intended target audience.
  • Give a balanced message about the returns, features, benefits and risks.
  • Hold up-to-date documentary evidence to support any rates of return, projections and forecasts, including how they are calculated and conditions that apply.
  • Make it clear that past performance presented is not indicative of future performance nor indicative of favourable outcomes.
  • Comply with the ARB’s Social Media Code when using influencers or ambassadors to promote a crypto product. Influencers or ambassadors may not offer advice on trading or investing in crypto assets and may not promise benefits or returns.

Crypto asset advertisements should not:

  • Be framed so as to abuse the trust of the consumer or exploit their lack of experience, knowledge or credulity;
  • Contain any statement or visual presentation that is likely to mislead the consumer;
  • Encourage the purchase of crypto assets on credit (unless advertised by a registered credit provider).

Fais code

Late last year, the Financial Sector Conduct Authority declared crypto assets financial products. Anyone marketing any financial product in South Africa is subject to the Fais General Code of Conduct. Here’s a summary of some of the main rules:

  • Advertisements must be factually correct and provide a balanced presentation of key information. An advertisement that references statistics, performance data, or awards must disclose the source and the date thereof; and make it clear whether the source is associated with the provider or is independent.
  • An ad that refers to premiums or other periodic investment amounts must, if the rate escalates automatically, indicate the escalation rate; and where the premium may change at a future date, indicate the period for which the premium is guaranteed.
  • Descriptions must not give benefits or returns undue prominence compared with risks, or exaggerate benefits or returns or create expectations regarding performance that the provider does not reasonably expect to achieve.
  • References to costs must be realistic and include any indirect fees or costs. A product or service cannot be labelled “free” if it is, in fact, paid for indirectly by the consumer.
  • The ad must use plain language that is accessible, clear and unambiguous. Terms must be defined or explained if the average targeted client cannot reasonably be expected to understand them.
  • Testimonials and third-person endorsements must be the genuine opinion and reflect the actual experience of the person making the testimonial or endorsement. (Do providers really stick to this rule? I seriously doubt it.) The ad must disclose whether the person has any financial Interest in or relationship to the provider.
  • Projected benefits, including future investment values and insurance benefits, may not be used if the projections depend on future unknown investment performance, unless used to demonstrate the benefits of savings generally. Any reference to projected benefits or returns must clearly reflect the impact of costs. Regarding past performance, the ad should state that past performance cannot be extrapolated into the future and is not an indication of future performance.

In short, ads and marketing material should not create unrealistic expectations for the buyer.


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