Decision due on financial adverts

The FSA investigates past performance figures

By BBC Radio 4's Inside Money producer, Jennifer Clarke

The Financial Services Authority has told Radio 4's Inside Money programme that it is unlikely to ban the use of past performance figures in advertising for investment products.

This is the first indication of the outcome of a FSA review into financial advertising, which is due next month.

However the organisation admits it has grave concerns that past performance figures can and do mislead consumers.

The figures show how well an investment has performed in the past.

By law, advertisers have to include a proviso to this effect, that "past performance is no guide to future performance".

But this warning is often buried away in the small print.

Predicting the future?

In practice consumers often take the figures as an indication of the returns they can expect even though the FSA's own research makes it clear this information is no use at all at predicting how the investment will do in the future.

The FSA was so worried about the way past performance features were used in adverts that it set up a special taskforce to investigate the rules last November.

Christine Farnish: 'Take those figures with a very big pinch of salt'

Christine Farnish is the consumer director of the FSA and the chair of that taskforce. She told Inside Money that potential investors should be very sceptical about promotional literature.

"My advice to any consumer looking at any adverts at the moment that have big headline figures on past performance is take those figures with a very big pinch of salt," she said.

All-out ban unlikely

But despite this concern, Ms Farnish said the taskforce, which is due to report next month, was unlikely to suggest an all-out ban on the use of such figures.

"I suspect that would be seen by most people as a very extreme response because after all past performance information is a fact.

"It may well be that a better way forward would be to allow past performance information but try and make sure that it's presented in a fairer way."

The FSA is responsible for the advertising of all investment products.

When the organisation gets its full powers in November it will regulate the promotion of all financial products.

No 'knee-jerk' reaction

But it must juggle its desire to protect the public with another of its key objectives - to maintain consumer confidence in the financial markets.

"What we wouldn't want to do is to knee jerk in such a way that people were frightened of investing in any way, shape or form. What we want is for people to do it with their eyes open."

Radio 4 listener Mark Stevens bought an ISA investing in shares which was promoted on its very strong past performance figures - 193% growth over five years.

He read the small print, but the overall message of the advert was so positive that he went ahead and bought the ISA anyway.

In fact his investment lost 20% of its value in the first year and in retrospect he is angry about the way the ISA was promoted.

'Cynicism'

"I think it is the cynicism with which financial products are marketed which disturbs me - the way the advertising industry regards the consumer as fair game, that it can push its marketing tactics to the very limit provided it's technically within the regulations."

After three days of talking to the industry, advertisers and regulators, Mark was pleased the FSA shared his concerns but was sceptical about how strict any new rules would be.

"I feel that the general view seems to be from all parties we have consulted that the average consumer is not really top of their list of priorities.

"I think it is going to take a lot more financial disasters before anybody, government or the regulatory bodies take the issue seriously."

Inside Money is BBC Radio 4's documentary series led by listeners on issues that make their blood boil.

You can hear Inside Money at 1200 BST on Saturday. The programme is repeated at 1500 BST every Monday on Radio 4, 92-95 FM and 198 LW.