Proposed amendments to the General Code of Conduct (Code) under the FAIS Act for Authorised Financial Services Providers and Representatives seek to align advertising requirements to those set out in the Long-Term and Short-Term Insurance Policyholder Protection Rules.
The proposed amendments aim to ensure transparency, raise the standard for advertising and marketing and help the client make an informed decision without having unrealistic expectations gained through misleading information. In this way, they will ultimately guarantee good outcomes for customers.
Key Individuals’ approval
Key Individuals will need a documented process and procedure to approve advertisements before publishing. If an advertisement is not aligned with the Code, the provider must correct or withdraw the advertisement, take reasonable steps to ensure it is corrected or withdrawn and notify anyone it is aware of who may rely on the advertisement.
Proposed requirements for general advertising
It is proposed that advertisements must be factually correct, balanced and not misleading, otherwise they create unrealistic expectations that could lead to poor financial decisions or customer outcomes. They may not belittle, make inaccurate, unfair or unsubstantiated criticisms about a financial product or service.
Advertisements that reference statistics, performance data, achievements or awards must disclose the source and date thereof, and the associate or product supplier who granted the award. References to premiums or periodic investment amounts must include the escalation rate or basis thereof, as well as the period for which a premium is guaranteed.
Descriptions of financial products or services must include key limitations, exclusions, risks and charges, and explain these clearly. Descriptions may not draw unwarranted comparisons between benefits or returns or exaggerate them, which could otherwise create ungrounded expectations. If all the information cannot be included in an advertisement, it should mention where and how the additional information can be obtained.
A realistic impression must be given of the overall fees or costs, including any indirect charges. Advertisements may not imply that a product or service is free if the client is paying for it directly or indirectly through costing or charges.
If an advertisement is targeting a specific group of clients, it must clearly state this. It must also not exaggerate urgency to encourage clients to make unduly hasty decisions.
Furthermore, the appropriate language and medium must be used so the average targeted client can reasonably understand the message. Records must also be kept of all advertisements for at least five years after publication.
Automatic contracts and means of communication
A provider may not offer to enter into an agreement in respect of a financial product or service with a client on the basis that an agreement will automatically arise unless the client declines the offer.
If a provider uses telephone calls, voice or text messages or any other electronic communication for advertising, the client must be allowed during that call or within reasonable time after receiving the message to opt out of future contact via these mediums.
Comparisons and endorsements
Where comparative marketing is used, the comparison must consider comparable characteristics across financial products and services. A survey or other comparison sources must be dated and referred to in the advertisement and the methodology applied must be publicly available and in an understandable format.
Endorsements and testimonials used in advertisements must be based on genuine opinion and actual experiences. If the person making the testimonial or endorsement has a financial interest or relationship to the provider or is in association with the provider or product supplier, or has been compensated for the endorsement, this must be disclosed in the advertisement. The endorsement must clearly state that it does not constitute financial advice.
Advertisements for loyalty benefits or no-claims bonuses must not imply the benefit or bonus is free. They must indicate if it is optional or not, express the cost as well as the impact it has on the premium or investment amount, and identify the grantor of the benefit or bonus. When a loyalty benefit or no-claims bonus refers to a projected value that is payable after a certain time period, it must express the values in present value terms including reasonable assumptions about inflation.
No projected benefits may be included in advertisements. These include future investment values and, in the case of insurance policies, maturity, income, death, disability or full or partial surrender benefits. Any reference to projected benefits, investment performance or returns must reflect the effect of fees and costs on the actual returns or benefits.
References to past investment performances must be accurate, the correct context must be provided, and all claims made must be substantiated. A statement must be included that past performance is not indicative of future performance. Any tax advantages referenced in advertisements must be explained, and any key restrictions, penalties and mitigating circumstances must be disclosed.
Underlying collective investment schemes
Advertisements of financial products that comprise participatory interest in an underlying collective investment scheme (CIS) or provide for investment of a client’s funds into a CIS portfolio, must also comply with the advertising and marketing requirements of the CIS Control Act 45 of 2002.
The industry was invited to submit feedback to the proposed amendments to the Code, which were published in November 2017, and Masthead submitted its commentary in February. Once the final amendments have been published, you will need to review your advertising policy to ensure alignment with the new provisions.