Watchdog tightens financial ad rules

Compromise by FSA

Chief City watchdog the Financial Services Authority (FSA) has announced new rules and recommendations to regulate the use of past performance data to advertise investment products.

The practice has been widely criticised for mis-leading consumers into the future performance of a fund.

From December, advertisers will be obliged to state that past performance should not be seen as an indicator for future growth.

This is currently only a guideline and not compulsory.

The plan, formulated by a task force including industry and consumer representatives, will also introduce new rules to improve advertising standards and clamp down on misleading claims.

Weak welcome

The FSA's proposals are unlikely to be given a resounding welcome.

Some critics of the current system feel the use of past performance data should be banned altogether from marketing literature.

A survey published by Chartwell, an independent financial adviser, on Wednesday suggested the majority of people use past performance data to buy their fund.

In the survey, 58% of people put performance (either the fund or the fund manager) as a reason for buying.

"The survey confirmed what we had suspected. Investors choose funds based on past performance, charges and risk. Very few consider the style of the manager or investment selection process," said a spokesman for Chartwell.

Misleading management

There is also likely to be further disappointment among consumer groups.

Advertisements often boast impressive performance data, but the actual fund manager that achieved that growth has left the fund.

The FSA has not banned this advertising technique.