Former Winterthur Life chief executive John Finnan explains why marketing departments will have to look more closely at their adverts, now the FSA is in charge
For insurance marketing departments it is time to face the music of regulation because on 3 April the Financial Services Authority (FSA) set out its new approach to regulating financial advertisements.
Its main thrust is to encourage consumers to spot and challenge advertisements they believe to be misleading. The FSA also reminds firms that they are responsible for ensuring that their advertisements are "clear, fair and not misleading" and must present a balanced picture of a product. Vitally, the key risks of a product should be set out alongside its benefits, not buried in the small print.
FSA consumer director Christine Farnish says: "Most firms do adhere to the spirit of our rules. But current market conditions put the spotlight on three areas that need particular attention. They are: a lack of balance between the benefits and drawbacks of a product; claims that can lead to unrealisticexpectations; and key information that gets buried in the small print.
"Our research shows that most consumers don't read the small print. Our proposals on past performance are designed to ensure that such figures are not viewed in isolation but considered alongside other important factors, such as flexibility, charges and investment strategy. "
In the past the financial industry has become used to a number of different regulators, such as IMRO and the SFA, each covering a specific sector. But, under the Financial Services & Markets Act , all of these pass to one central regulator, the FSA. But the Advertising Standards Authority will still continue to monitor complains made on the basis of taste and other non-technical issues.
The onus will be on a business to ensure it has direct guidance in place with regard to its adverts and that it can monitor day to day procedures for compliance. This will be costly in both time and manpower. It will be essential to work directly with the FSA to review its compliance standards and procedures and implement those criteria and processes recommended.
Under the new system, senior management is responsible for a firm's conduct and compliance. Within marketing, the marketing director will need to take a leading role.
Management must be aware of the business risks, ensure the relevant skills are in place and establish effective compliance procedures to meet the new requirements.
To make sure the business risks are fully understood, they should be broken down from the overall business level to marketing and product levels. This is primarily a marketing task. For example, the risks involved in entering a new market and gaining a new type of client with which the firm has no previous experience, should be analysed.
A risk strategy per product category will become standard as a basis for developing controls and procedures.
Many financial products carry a wealth of detailed description. Customers will benefit because essentials such as charges and commissions cannot be omitted. But they may face difficulties in locating other important points, which can be lost in the volume of material. (For example, pension drawdown schemes have been known to be accompanied by 36 pages of notes).
It is the clear responsibility of the marketing and sales team, within the spirit of the regulations, to highlight those points of particular relevance to the client.
Marketing is in business to create a competitive edge and this cannot be done without breaking new ground and trying new techniques. Innovation and creativity are essential to the financial industry.
Under the new rules, it will be the task of management, especially in marketing, together with their compliance officers, to interpret advertising and product literature in the spirit of the rules. Marketing specialist will be keen to maintain the competitive edge through the promotional message which is the central theme of any advertisement of product description. There is a balance to be achieved that is ultimately the judgment of senior management.
The relationship with the FSA is crucial to a business. It should be open and constructive, communicating processes and procedures on a regular basis. A partnership with the FSA should be developed by senior management and compliance officers. This will be of particular importance in resolving any problems that may occur in the future.
The UK has arguably the best and most sophisticated financial services industry in the world. There have been some mis-selling incidents, but on the whole the consumer gets a good deal and has a very wide choice. The message from the FSA to consumers is not too positive; it contains the underlying implication that there will be mis-selling.
The rest of Europe looks on aghast as our government bodies attack a healthy and thriving industry. The hope is there will be a partnership with the FSA to ensure the UK insurance industry can compete with the rest of Europe and not be bogged down with marketing so full of warnings that consumers are afraid to enter the market.
For consumers to receive the information they require and deserve, it would be better to have less of an enforcement and punishment regime and more of a mentor and assistance culture.
John Finnan is chairman of Touchdown Integrated Marketing