It’s becoming very hard to sell money

With widespread concern about personal debt levels, shrinking budgets and the FSA showing its teeth and tightening up the rules on financial services advertising, marketers in the sector face some hard times. By John Stones

Those in the business of marketing financial products are going to have to think of a new selling-point, now the Government and regulators are clamping down on the use of “past performance” figures.

Financial services companies have long tempted consumers to buy products such as ISAs by emphasising the dramatic prospects for growth. But now a series of measures is being introduced to clamp down on irresponsible or misleading financial services advertising.

In addition, alarm bells are ringing over the UK’s high levels of personal debt, with the Citizens’ Advice Bureau last week pointing the finger at the marketing tactics of financial services companies. The CAB found, in a survey of 8,000 cases it had dealt with, that the average client owed &£10,700 yet had a monthly income of just &£800, and that 70 per cent of the debt was consumer credit.

The Department of Trade and Industry is to publish new rules on the advertising of credit products, and the Financial Services Authority (FSA) – which regulates investment products – is introducing rules to restrict the use of past-performance claims in advertising and marketing literature. Both initiatives are designed to create greater consistency in the claims made about products and to allow consumers to make informed decisions and comparisons.

In response to a question in Parliament from MP Barry Gardiner, who has been pressing for a reform of the &£48bn UK credit card industry, the Prime Minister has shown enthusiasm for “honesty boxes”. Modelled on American-style “Schumer boxes” (after the US senator who introduced them) these are prominent graphics which display the basic information about a card – such as additional charges, foreign currency charges, interest-free periods and APR – in a standardised format. Current legislation under the Consumer Credit Act sees a lot of vital information relegated to the seldom-read small print.

Sue Edwards, author of In Too Deep, a CAB report on debt published last week, says financial services companies should exercise greater responsibility in their marketing and refrain from enticing people to take up credit they can’t afford.

She singles out a mailing from the Halifax, which carries the strapline “Noughty but nice” alongside several large “0%” signs and a picture of a woman accompanied by the caption “Hit the high street”. Underneath, it proclaims that the Halifax “always gives you extra”.

Then there is a HFS Loans mailing which says: “Congratulations, you have been accepted for an exclusive debt-busting loan from HFS” above a blank cheque.

The danger with such mailings, says Edwards, is that the UK has very low levels of financial literacy. She says: “The information in the ads is all that many people have to go on, and the important information is all in the small print.”

Credit card companies defend their advertising, saying it is compliant with the rules. A spokeswoman for trade body the Association for Payment Clearing Services says: “Marketing and giving people credit are two different things. Companies routinely reject between 40 and 50 per cent of applications.” She also claims that people run up debts not because they have too many credit cards, but because they experience some traumatic event such as the death of a partner or redundancy. However, she says the industry would welcome honesty boxes.

On investment products, the FSA is imposing a different type of honesty. Past performance will have to be given in a standardised percentage format, not in monetary terms, and companies’ own claims must be less prominent than any mandatory data.

In March, the FSA issued its first fine for misleading advertising. The agency has been investing in the policing of marketing material and invited consumers to complain if they feel they have a grievance. The FSA fined DBS Financial Management, the UK’s largest network of independent financial advisers, &£100,000 for issuing a direct mailing which fell foul of the regulatory requirement to be “clear, fair and not misleading”.

The regulator said that the “protected” ISAs (that is, ISAs which give back at least the amount put in) being marketed in fact had only limited protection, that there were initial charges of six per cent rather than the “no initial charge” advertised and that the material made excessive claims about future growth prospects. Since the mailing was sent out, in 2001, DBS has been bought out by Misys and rebranded as Sesame.

Lucian Camp, chairman of specialist financial services ad agency CCHM, feels that imposing restrictions on past-performance figures is as anachronistic as being told not to tie your horse to a parking meter. He believes few companies still want to use past performance as a marketing tool, and that the investment industry is instead grappling with how to go about brand-building.

Stephen Abbott, a partner at WWAV Rapp Collins’ consultancy arm, Zalpha – and a former marketing director of Legal & General – agrees that past-performance figures have more or less disappeared from marketing, as the graphs that once looked so impressive now show a gloomier picture.

Jupiter director Amy Rennison adds that brand-focused advertising will become more prevalent as a result of the FSA’s rules. But that does not mean that Jupiter is going to abandon past performance as a marketing tool. The brand was built up in the Nineties using performance data, with the company’s advertising featuring prominent graphs showing meteoric success. Rennison says performance remains Jupiter’s central brand message, and its strapline of “On the planet to perform” will remain in use.

Although marketing budgets have been buoyant in the credit sector, ad spends in the investment and long-term savings sector have fallen even more dramatically than the stock market itself. According to Zalpha, for instance, the industry spent &£18m on ISA advertising in the first quarter of this year, compared with &£32m for the same period in 2002 – itself a huge drop on the &£73m spent in 2001.

Given future restrictions on using past-performance messages, Abbott is unconvinced that a “brand and phone number” approach to ISA advertising will work. “Companies need to give people a reason to want an ISA,” he says. He believes that companies are likely to begin emphasising product characteristics – explaining how they work, or talking up value or simplicity – rather than merely appealing to greed.

Camp says that official policy on financial marketing is confused: “There is a terrible muddle. On the one hand, the Government wants people to make more financial decisions and make better financial provision for themselves; on the other, it hates the fact that there has to be a vibrant sales and marketing industry to make this happen.”

Already, price-capped stakeholder pensions are making marketing difficult – their tight margins leave financial companies little to reinvest in marketing campaigns. This problem will soon get worse, with the introduction of so-called “Sandler” simplified products.

In future, financial services marketers are going to have to show great inventiveness if they are to effectively promote a sector which faces increasingly rigorous restrictions on its claims and literature and labours under ever-tightening budgetary circumstances.

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