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News: Financial advertising wildly misleading

76% of financial services advertisements and promotions in the UK fail to meet the requirements set out by the Financial Services Authority, and in some cases are wildly misleading, according to research conducted by business and financial advisers Grant Thornton.

The Group reviewed 117 financial promotions, including newspaper advertisements, websites and other literature, from 94 financial services companies that appeared in the mainstream media in late 2005.

The ads were issued by a range of organisations, including some of the UK's leading household names, and found a disturbing range of problems including:

  • Advertising deals or cheaper premiums for "headline grabbing" purposes which were not available in practice, with more expensive premiums quoted when the organisation was telephoned
  • Saying premiums are cheaper than a competitors by comparing a basic product with a competitor product that offers a more comprehensive cover
  • Using scare tactics such as "1 out of 3 people will get cancer in their lifetime" but not pointing out that some forms of cancer are not covered by the product being advertised and that many of the cancer cases in the statistic quoted are likely to affect people of an age for whom the policy would not be suitable or eligible
  • Ignoring the need to include risk warnings required by the rules, such as that income will be subject to tax or that values of funds could go down as well as up
  • Making wide-reaching claims that are not true or cannot be proven, such as saying the products offer "the best rates" or "mortgage rates are at their lowest for years" when rates have risen since 2003
  • Using a wide range of jargon to confuse consumers, such as MVR, LTV, IVA, CCJ and descriptions such as "core plus satellite"
  • Excessive use of small print.

The research found significant flaws in 84% of all retail investment promotions and 81% of mortgage promotions. Insurance advertisements and promotions fared slightly better with 61% being found deficient.

Ian Gorham, a partner within Grant Thornton's Financial Markets Group, said: "The fact that three quarters of all UK financial advertisements and promotions that we scrutinised did not meet the requirements is highly disappointing, and even more so given some of the serious examples we found."

"These flaws are driven by intense competition to attract customers, but the UK financial services industry has had enough recent scandals in areas such as pensions and endowments, and it is time to adopt the necessary checks and balances to give investors the correct information."

"It is absolutely critical that the industry takes the FSA requirements more seriously," he continued.

Looking at the results in more detail, in relation to the 'clarity of products being advertised', the survey found that 65% of mortgage promotions and 58% of retail investment promotions needed to improve the clarity of their product or services provided, whereas insurance promotions received a 92% pass rate.

When it came to 'outlining the appropriate risk warnings', 76% of retail investment advertisements and 51% of mortgage advertisements failed to raise investors' awareness of associated risks, whereas only 24% of insurance promotions needed to further outline risk warnings.

'Percentage and headline claims' saw 57% of mortgage promotions and 54% of insurance promotions fail the FSA's criteria, however, only 4% of investment promotions made false claims in this category.

'Misleading statements' also showed varying results, with 61% of insurance promotions, 30% of mortgage promotions and 21% of retail investment promotions making potentially misleading statements to investors.

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