The FSA's interpretation of financial promotions regs has apparently taken a turn which runs contrary to the concept of marketing.
Based on conversations going on behind the scenes, the Financial Service Authority is thought to be struggling to understand what rules it should apply to financial promotions, ahead of the introduction of the EU directive MiFID next year, and sources say FSA officials are asking the industry what it thinks the regulations should be.
(Update on 17th August - I should stress the FSA is already rattled by the comments expressed in this blog, and has been on the phone since its initial publication to take umbrage with the comments made, keen to stress no conversation has taken place between the FSA and IFAonline. FSA officials also say the article "does not represent in any way the FSA regulatory regime on financial promotions" although this is not what we are actually highlighting, rather what it is apparently considering doing to future rules.)
To say this has created bewilderment among those who have been discussing the matter with regulatory officials would be an underestimate, as this is a very new take on regulatory development by the FSA.
Rather than applying the principles-based approach which the FSA appears keen to champion, the situation becomes even more complex and officials are said - according to industry sources - to be looking at laying down rules which could be seen as anti-competitive, because they believe business practice is anti-competitive.
It seems while there will still be the requirement for firms to carry the usual “past performance is not necessarily a guide to future performance” etc blurb, one of the key changes apparently being considered is every advertisement, promotion or piece of marketing could be forced to conform to a regulated size.
The suggestion is not about the size of a disclaimer or how big the font – although that is exactly what the FSA apparently intends to do - according to sources - by setting out rules on font size, and logo usage etc on official documents as feared some time ago – but whether one company can afford to buy a bigger advert than another.
The FSA’s argument, industry sources say, is companies such as fund managers and life offices have substantially bigger budgets than others, and it could therefore be considered unfair they can afford to buy a full-page ad in the national press when a smaller firm would choose to buy a strip at the bottom of the page.
Just to complicate matters further, the FSA is apparently still keen to adopt its traffic light ‘risk’ system - which everyone but the FSA has already told the Treasury Select Committee would be a pointless exercise because every client has differing amounts of money and priorities - so ads would be required to carry a red, amber or green tag depending on the risk you will lose your money.
Rather than relaxing the specifics on promotions to meet principles-based regulation, the suggestion from the market is the FSA doesn't really understand the consumer mind when it comes to marketing and consumer education.
Research conducted by financial services companies indicates the more you complicate a document and the more information you force it to carry, the duller the images and fonts you limit firms to, the less likely consumers will be interested in its contents.
And yet this is the draconian measure the FSA is apparently considering.
All of this comes at a time when certain sectors – notably the protection market – are screaming out for a sexy advertising campaigns to catch consumer interest in the need to look after their own finances.
The market feedback as a result is there is a fear the FSA is moving too far towards the conservative approach in its bid to limit consumer detriment ,and hasn’t considered the savings gap could widen if promotions are standardised and companies are not given space to be innovative in design and thinking.
It’s possible the FSA is playing Devil’s Advocate by pushing its suggestions too far and then offering its “middle ground” as the fairer option it had always intended to take.
But in an era when companies are supposedly being left to decide for themselves how to meet regulatory principles, it’s amusing to see the FSA’s own marketing perspective - to be clear, fair and not misleading - has gone somewhat off message from the needs of the consumer.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Julie Henderson on 020 7968 4571, email [email protected] or go to the IFAonline discussion boards.IFAonline
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