Bid to end misleading investment ads

13 April 2012

THE City watchdog set out new rules today to prevent investment companies using misleading figures on past performance in adverts.

The rules, which come into force on June 1, aim to prevent firms offering products such as unit trusts and OEICs from cherry-picking the data they use to show a product in the most flattering light.

Instead, if they use past performance data it will have to be accompanied by a table showing what the annual returns on a fund have been each year for the past five years, the Financial Services Authority said.

The figures will have to be shown as a percentage to give consumers a better understanding of the volatility of an investment and how it has performed over time.

If a fund has not been around for five years the advert must show as much past performance data as there is, and if the data available covers less than 12 months, information on past performance will not be allowed to be included in the advert.

The move is part of a bigger package to improve the way past performance figures are used in advertising.

Other measures include reducing the emphasis on past performance, strengthening warnings so they appear in the main part of an advert and not buried in small print, and preventing firms making a link between past and future performance.

The Financial Services Consumer Panel welcomed the new rules, but said it was disappointed that the FSA had decided not to ban the use of showing past performance in money terms.

Ann Foster, chairman of the panel, said: 'Allowing the use of some monetary values in financial promotions is a recipe for confusion that could lead to problems in the future.

'We would have preferred to see the FSA acting on its own research findings and prohibiting the use of monetary values altogether.'

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