Our expectations of firms promoting investment products, and common misconceptions about risk warnings.
Consumers should have a fair and clear description of the relevant risks of investment products alongside promotion of the benefits. This supports a sustainable long-term retail investment culture in the UK.
We’re currently supporting a review of risk warnings, led by the Investment Association and supported by the Treasury.
To support this work, we're outlining our expectations of firms and some common misunderstandings we've heard from them. We recognise that these points are all being worked through as part of the review, but believe this will help move forward the debate. We'll keep working with the review to better understand what drives these misconceptions and whether any wider reforms are needed.
Mainstream investment products refer to any investment products that are not subject to our high-risk marketing or distribution restrictions (eg not subject to COBS 22, a restricted mass market investment or non-mass market investment).
Considerations when promoting investment products
Financial promotions likely to be received by retail customers must meet requirements under the Consumer Duty. This means that they must support customer understanding, and be clear, fair and not misleading.
When promoting investment products, you must ensure promotions:
- Are fair, clear and not misleading (COBS 4.2.1R(1)).
- Give a balanced impression of the benefits and risks of an investment product or service (COBS 4.5.2R(2) or COBS 4.5A.3R(2)(b)).
When designing communications, you should put yourself in the consumer’s shoes and think about what they would want or need to know. Where appropriate, this includes testing communications (see PRIN 2A.5.10R).
When planning promotions, it may help to consider:
- What type of product or service is it? Would a consumer get a clear picture of its features from the information being offered?
- What type of consumer is this targeting? Does the promotion use jargon that doesn’t match the capability of the audience?
- What are the key risks involved? What is the best way to make consumers aware of these risks?
- What stage of the customer journey, and in what medium, is the communication made? How much information is useful for the consumer at this point?
- Is all the information relevant, or are there unnecessary disclaimers?
Misunderstandings about risk warnings
| Misunderstanding | Reality |
|---|---|
| Mainstream investment promotions must use the phrase 'capital at risk'. | We do not prescribe risk wording for mainstream investments. Our behavioural testing (PDF) has suggested just stating ‘capital at risk’ is often ineffective. |
| All financial promotions for investments must include a risk warning that is separate from the main body of the promotion. | There is no requirement for mainstream investment promotions to include a separate risk warning. They must provide a balanced view of the benefits and risks, to give consumers a fair description of the product or service. |
| Promotions must talk about the risks before benefits. | We don't mandate how you should order your promotions. You may order your messaging however best supports consumer understanding. Risks do not need to come first. |
| Requirements not to diminish information mean you can’t use certain words like 'but'. | You should put yourself in your customer’s shoes and consider how your communications phrasing as a whole supports consumer understanding. |
| Brand advertising must include risk information. | Image advertising, such as branding, does not need information about risks. |
| Warnings must be repeated on every page of a customer journey. | Promotions must be standalone compliant. You need to ensure consumers see the right information at the right time, and are equipped to make effective, timely and properly informed decisions. This does not require generic, repeated risk disclosure on every page. |
How to meet the requirements
Risk statements
You should ensure that a financial promotion makes it clear if a product or service places a customer’s capital at risk (COBS 4.2.4G(1)).
You don’t need to include a separate disclaimer or warning. Risk information can be communicated prominently in the body of a promotion, or alongside the benefits as part of a balanced explanation of the product’s benefits and risks.
Our behavioural testing has shown that consumers often don’t read ‘capital at risk’ statements. So, you should think about how you can get consumers to engage with important information.
Generic risk warnings can be unnecessary and sometimes mislead or confuse consumers by detracting from the relevant risks. You should consider if your communications support consumers’ understanding of the products and services being marketed.
We've seen firms introduce contextualised risk statements that explain both the potential benefits and risks of investing in their promotions. We support this approach.
Diminishing or disguising information
You should make sure your promotions do not disguise, diminish or obscure important information or warnings (COBS 4.5.2R(4) or COBS 4.5A.3R(2)(e)).
You must not downplay key information you provide to consumers in a way which could be misleading. This may be by discouraging consumers from considering information or presenting it in a way that means consumers are unlikely to consider it.
Explaining the potential benefits of a product can be done alongside explaining the risks. Doing so doesn’t have to diminish the risks if done fairly. It’s part of communicating a balanced promotion.
Cash comparisons
When communicating comparative information in relation to investments, you must make sure that the comparison is meaningful and presented in a fair and balanced way (COBS 4.5.6R or COBS 4.5A.7R).
Cash and investment products have different purposes for consumers, depending on their circumstances, objectives and risk tolerance.
You can compare cash and investment products to help a consumer’s decision-making. But you must provide balanced information on the features of both, and equip consumers to make effective, timely, and properly informed decisions.
