Tell the whole truth and nothing but the truth: finance commercials go on trial

The City's policemen are cracking down on misleading marketing, but which ads will fail their tests? Sam Dunn investigates

The torrent of financial adverts pumped out in newspapers and on television, radio and billboards is to come under scrutiny from the Financial Services Authority (FSA).

The torrent of financial adverts pumped out in newspapers and on television, radio and billboards is to come under scrutiny from the Financial Services Authority (FSA).

The City regulator has launched a sweeping review of advertising and promotions used by lenders and brokers to sell their wares, and will be on the lookout for any misleading messages and statements. In particular, its gaze will fall on the newly regulated mortgage and insurance industry.

Whereas in the past, the FSA concentrated on the promotion of less-popular financial products such as investment funds, it will now grapple with mortgages and insurance bought by millions of people across the UK. And given the power of television to reach into our homes, the FSA has a big task ahead of it.

Its review will encompass all points on the mortgage and insurance map, from big high-street lenders to smaller outfits such as debt consolidation brokers and equity release companies. The regulator intends - at least in the early days - to target advertising by those firms it believes direct their ad campaigns at the vulnerable, such as the elderly or those with poor credit records.

Special focus will be on debt consolidation - where people with a stack of bills are encouraged to lump them together into a single loan secured on their home - and on equity release schemes under which "property-rich, cash-poor" older homeowners sign away part of their property in return for a cash sum.

In the latter case, the market has boomed thanks to the surge in property prices in recent years, combined with many people's inadequate pension provision. Last year saw a 10 per cent rise in equity release schemes, with more than 15,000 lifetime mortgages - worth a total of £693m - taken out in the second half of 2004.

"Financial promotions are a high-risk area for consumers as they play an influential role in the decision-making process," says Anna Bradley, the director responsible for financial promotions at the FSA. "Promotions need to be clear, fair and not misleading - otherwise they may do no more than promote misunderstanding."

So far, the FSA has not been shy to hit those companies it believes have not played fair. Its punitive action can range from a request that an offending ad be withdrawn to public censure coupled with a hefty fine.

This was the fate that befell AXA Sun Life and its Bonus Cash Builder and Guaranteed Over 50 plans in late December. The insurer was fined £500,000 for a series of "misleading" adverts which, in the opinion of the FSA, did not provide customers with sufficient information about how the products worked or the risks involved for investors.

The TV ads, some of which featured the Changing Rooms presenter Carol Smillie and the actress June Whitfield, highlighted the products' benefits and the free gifts on offer to those who signed up.

Also in December, the FSA fined the spread-betting company Cantor Index £70,000 for "misleading" promotions. The material it issued did not contain adequate warnings about the risks of spread betting and "put a large number of customers at risk," the regulator said.

"We are not expecting any confrontation with the industry," adds an FSA spokesman. "It's simply that, with financial promotions, consumers have to have enough information to make an informed decision.

"If consumers have all the information in front of them, firms have nothing to fear from us. It's when adverts don't give the right information that the problems start.

"That said, common sense will prevail. We don't expect consumers to walk away from an ad knowing all the ins and outs of a product."

The FSA's focus on financial marketing has been given a cautious welcome by the Which? consumer body.

"This review is a step in the right direction but the proof of the pudding is in the eating. we need to see if the FSA can actually find enough examples of bad behaviour," says Laurence Baxter, the senior policy adviser at Which?.

But there are certainly risks out there for consumers, he stresses. For example, cheap unsecured personal loans are advertised without any mention of the payment protection insurance (PPI) that is regularly pushed by sales staff when people respond to such promotions. PPI is a "bolt-on" piece of insurance, separate from the main product, which gives companies plenty of leeway to get around advertising regulations, Mr Baxter warns.

Some critics suggest that, in the wake of the FSA review and taking a longer-term view, there could be a move towards ads that promote the lender's brand rather than its products. But others believe that pricing will continue to play a crucial role.

As part of its advertising review, the FSA is also looking at companies that promote child trust funds, due to go live in April. In a government initiative intended to encourage saving, every child in Britain born after 1 September 2002 will receive at least £250 to be either invested on the stock market or placed in a deposit account.

The regulator's concerns have so far turned on the use of the term "savings plan" in adverts where there was no description of the nature of the product or indication whether it had any links to a stock market.

Other child investment promotions carried either insufficient information about the risks to your capital or inadequate information on how the products differed from savings accounts when comparing investment returns.

The FSA has set up a telephone hotline on 0845 730 0168 for consumers to report any financial advertisement or promotion they believe to be unclear or misleading