Getting on the right track with Financial Promotions; a brief guide for Appointed Representatives

As a rule, a firm cannot communicate a financial promotion unless they are directly authorised themselves or the communication has been approved by another authorised firm. If you are an Appointed Representative this will be a key part of your working relationship with your Principal firm as they will be responsible for approving all your financial promotions.

This process can quickly begin to feel like a game of tennis, with documents going back and forth for amendments before being approved, so it’s always worth getting to grips with the basics of producing a compliant financial promotion before designing your materials and sending them for approval. This article focuses on financial promotions for investment products and will hopefully provide a little insight in to how to put together a compliant financial promotion.

So, what is a financial promotion? Well its defined under section 21 of the Financial Services & Markets Act 2000 (“FSMA”) as ‘an invitation or inducement to engage in investment activity’. This is a wide definition and therefore catches a vast array of marketing materials produced by firms.

Generally, the best way to think of it for the purposes of your own outbound marketing is ANY communication made to clients or prospective clients that is designed to ultimately lead to them making an investment, could be interpreted as a financial promotion.

This includes emails, websites, flyers and even tweets. So, ask yourself this…. ‘is this designed to influence the decision-making process for a prospective client or investor?’ If the answer is yes, even if it’s just to persuade them to find out more about a product, it’s probably a financial promotion which means, (regardless of who you are aiming it at) there are 3 important threads that must run through the communication.

1.      Be fair

Get the balance right. You need to ensure that the benefits of the investment are not displayed more prominently than the risks so keep in mind the font you use and the layout of your page. For example, if the product places an investors capital at risk this needs to be clearly stated and in a sufficiently prominent position where it won’t be overlooked by an investor .

Get ready to verify. If you are making factual claims about your product, service, the market, or the management team, for example receiving industry awards or having an excellent track record, be ready to back these statements up with independent sources as your Principal should want to see them.

Be upfront about the cost. Make it clear what fees there are, how they will impact the investment and if there are any other charges a potential investor should consider.

2.      Make things Clear

Don’t make assumptions. When you work in the financial services industry certain technical terms or acronyms seem obvious to you, but you can’t predict the level of knowledge and understanding the recipients of your promotion have. Even if you are targeting experienced investors, there is no way to guarantee your promotion won’t reach a wider audience so make sure you include enough information and explain key terms clearly and in a way, that can be understood by your likely target recipients.

Manage expectations. If you are quoting a return make it obvious if it is a gross return of not. If it’s a target return, ensure you state it as such with a reminder that it is in no way guaranteed and give a realistic idea of timeframes for receiving returns.  If the investment is illiquid, remind the reader that the investment may not be realisable and their capital is at risk.

If your product has the benefit of tax reliefs, you will need to remind investors that this will depend on their own circumstances and that tax rules can change within the life of the investment.

3.      Do not be misleading

Keep an eye on the ‘headlines’. People are busy and often pick out the headlines and highlights when making decisions. Don’t make your customers work too hard to get the full picture, they won’t thank you for it and you could find yourself in breach of FCA rules. Don’t make past performance (no matter how impressive it may be) the most prominent feature of the communication.

Don’t sensationalise. There’s always a temptation to use lots of attention grabbing adjectives to describe your product, but unless you can provide independent source to support your claims that an investment opportunity is ‘ground-breaking’ or ‘outstanding’ it’s better to stay objective. Don’t let these exaggerated expressions of praise creep into your financial promotion.

Lay it all on the table. Financial promotions should include the good, the bad and the ugly! You will fall foul of FCA rules if you only cherry pick the best bits for your marketing materials. Investors need to be able to make an informed decision and they can’t do this if the potential ‘downside’ of an investment opportunity is missing or hidden in the small print.

The rules in this area are detailed and, as with the most complex areas of the FCA handbook, contain plenty of shades of grey. However, if you always start by checking your promotion is fair, clear and not misleading you’ll be heading in the right direction and your Principal firm can guide you from there.

Marie Howley is a co-founder of Enterprise Incubator and Consultancy LLP, a firm providing compliance support to regulated financial services firms in the UK and EEA.

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