Effective advertising encourages consumers to find out more about a particular firm’s products and may prompt them to buy the product. However, the nature of financial products makes them harder to compare than those in many other markets, so consumers are more reliant on financial promotions. Financial promotions may be the consumers' main or only source of information that they base their decisions on.
This is a particular risk in the financial services sector because of the complex and often long-term nature of financial products. Any problems with the product may not come to light for many years after the purchase.
Promotions that fail to be 'fair, clear and not misleading' can pose material risk as they could lead consumers to buy the wrong product - ultimately with unhappy outcomes for them and for firms.
Consumers should be confident that products perform as they have been led to expect. This is why we put such an emphasis on promotions getting the right information across.
Financial promotions play a key role in our overall aims of delivering an efficient and effective retail market in financial services and in helping consumers to achieve a fair deal. In particular, our work on raising standards in financial promotions helps to ensure consumers receive and use clear, simple and understandable information. This should also help them to become more capable and confident in the decisions they need to make.
Although firms can produce adverts that may be technically compliant, consumers will rapidly lose interest if they do not understand them. Alternatively, if consumers fail to understand fully what is being offered to them and go on to buy a product, there is a risk that it will not meet their expectations. Either way, this is not good for business as firms may face damage to their reputations or receive more complaints. Indeed, the clearer the advert and easier it is to understand, the more likely the next step taken by the consumer will be the correct step for them, whatever that might be - to buy, to get more information, or to walk away.
So there are clear benefits to firms and consumers in acting to reduce the likelihood of unfair, unclear or misleading promotions.
Clear communications are also a key component of how firms apply our Treating Customers Fairly (TCF) objectives in practice. Of the six consumer outcomes that explain what we want TCF to achieve for consumers, the following three are directly relevant to financial promotions:
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