ASIC warns property spruikers about dodgy advertising

Promoters of investment properties will have to meet new standards of best practice, following the release of a new ASIC consultation paper.

The regulator wishes to ensure that there is accuracy and balance in the advertising of investment products and has proposed good practice guidance covering:

• the nature of the product
• returns, benefits and risks
• warnings, disclaimers, qualifications and fine print
• fees and costs
• comparisons
• past performance and forecasts
• use of certain terms and phrases
• the advertisement’s target audience
• consistency with disclosure document
• photographs, diagrams, images and examples
• the nature and scope of the financial advice service

“The objective of our guidance is to help promoters and publishers present advertisements that are accurate, balanced and that help consumers make decisions that are appropriate for them,” says ASIC chairman Greg Medcraft.

“We would like those preparing advertising to actively work to present a balanced understanding of the product or service, including its risks. It is also important they take into account the kind of audience likely to see the advertising, according to the medium they are using. They should ensure that advertising is not targeting an audience for which the product is unlikely to be suitable.”

The release of the consultation paper – due to be implemented in January 2012 – comes a day after the release of draft legislation aimed at giving ASIC more power to ban financial planners and requiring them to sign a fresh contract with their clients every two years.

ASIC is seeking feedback from investors, consumers and other interest parties on its advertising proposals by October 25.

Research carried out by ASIC among 1,000 Australian investors, including property investors and self-managed super fund holders, found them heavily influenced by the media.

According to ASIC, 44% of the investors who had used or would use media-based information sources to make an investment decision said they did or would use these media sources for both investment information and to seek investment opportunities and advertisements

Furthermore, it found that investors “were attracted and/or influenced by product advertising and, for some investors, the frequency and format of the advertising acted as a proxy for quality”.

ASIC presented five hypothetical investment advertisements to investors. The two that received the most interest used the words “secured” and “capital guaranteed”.

“We encourage the financial services industry to strive to do more than simply meet the minimum requirement of not being misleading or deceptive,” the consultation paper reads.

“Rather, we encourage industry to actually take a role in ensuring that advertising helps investors and consumers to make decisions that are appropriate for them.”