Wednesday 9 August 2006 06 LAWFUEL – Law News Network – The Australian Securities and Investments Commission (ASIC) has cautioned investment funds against the misleading use of past performance information in advertising and promotional material.
Today’s warning follows concerns by ASIC that an advertisement for an investment product offered by BT Financial Group (BT) included past performance information which was potentially misleading. The advertisement’s headline asked the rhetorical question: ‘Past performance isn’t a reliable indicator of future performance, is it?’ followed by past performance information showing strong returns.
In ASIC’s view, the advertisement was misleading because it encouraged consumers to believe that the past performance of the product was a reliable indicator of future performance. ‘Past performance is not a reliable indicator of future performance. An undue emphasis on past returns can lead to consumers having unrealistic expectations and making poor investment decisions’, ASIC’s Executive Director of Consumer Protection, Mr Greg Tanzer said. Mr Tanzer said ASIC was particularly concerned that the BT advertisement reflected a flippant approach to guidelines detailed in its Guide on the Use of Past Performance in Promotional Material. ‘ASIC expects that industry will take a responsible approach to its marketing activities. If you’re going to use past performance information in your advertising, you must do it responsibly and without being misleading’, he said.
BT has agreed to stop its existing advertising and refrain from using similar wording in future advertisements. BT is now also implementing measures to improve compliance in its advertising and other communications. In 2003, ASIC commissioned a review of Australian, UK, and US academic studies into the correlation of past performance with future performance.
The review concluded that good past performance is, at best, a weak and unreliable predictor of future good performance over the medium to long term.
Background ASIC’s Guide on the Use of Past Performance in Promotional Material was released in July 2003 – see ASIC MR 03-210 ASIC guidelines: using past performance figures in investment ads Key guidelines include that: • advertisements using past performance information should include a five-year return figure (or the longest period available for newer funds); • information about returns should be balanced with information about risks; • all past performance figures are up-to-date; and • important information should not be buried in fine print. The Australian Securities and Investments Commission Act 2001 prohibits conduct that is misleading or likely to mislead. The review of academic studies into past performance information can be found at ‘A Review of Research on the Past Performance of Managed Funds’ For further information contact: Mr Greg Tanzer Executive Director, Consumer Protection Telephone: 07 3867 4704 Mobile: 0411 549 144 Emma Forehan ASIC Media Unit Telephone: 03 9280 3354 Mobile: 0409 702 310