Financial Promotion brief guide for Appointed Representatives

Mar 27th '24

As a rule, a firm cannot communicate a financial promotion unless they are directly authorised themselves or the communication has been approved by another authorised firm. If you are an Appointed Representative this will be a key part of your working relationship with your Principal firm as they will be responsible for approving all your advertising.


This process can quickly begin to feel like a game of tennis, with documents going back and forth for amendments before being approved, so it’s always worth getting to grips with the basics of producing a compliant financial promotion before designing your materials and sending them for approval. Here we focuses on financial promotions for investment products and will hopefully provide a little insight in to how to put together a compliant financial promotion.


So, what is a financial promotion? Section 21 of the Financial Services and Markets Act 2000 (“FSMA”), governs the rules that financial promotions must be produced in line with. Its defined as ‘an invitation or inducement to engage in investment activity’. This is a wide definition and therefore catches a vast array of materials produced by firms.


Generally, the best way to think of it for the purposes of your own outbound marketing is ANY communication made to clients or prospective clients that are designed to ultimately lead to them making an investment could be interpreted as a financial promotion.


This includes emails, websites, flyers and even social media like tweets. So, ask yourself this…. ‘is this designed to influence the decision-making process for a prospective client or investor?’ If the answer is yes, even if it’s just to persuade them to find out more about a product or service, it’s probably a financial promotion which means, (regardless of who you are aiming it at) there are 3 important threads that must run through the communication.


  1. Be fair

Balance – You need to ensure that the benefits of the investment are not displayed more prominently than the risks so keep in mind the font you use and the layout of your page. For example, if the product places an investors capital at risk this needs to be clearly stated and in a sufficiently prominent position where it won’t be overlooked.


Substantiation – If you are making factual claims about your product, service, the market, or the management team, for example receiving industry awards or having an excellent track record, be ready to back these statements up with independent sources as your Principal should want to see them.


Costs – Be upfront about any costs. Make it clear what fees there are, how they will impact the investment and if there are any other charges a potential investor should consider.


  1. Make things Clear

Don’t make assumptionsWhen you work in the financial services industry certain technical terms or acronyms seem obvious to you, but you can’t predict the level of knowledge and understanding the recipients of your promotion have. Even if you are targeting experienced investors, there is no way to guarantee your promotion won’t reach a wider audience so make sure you include enough information and explain key terms clearly and in a way, that can be understood by target market and the actual market (the likely recipients), if these differ.


Manage expectations – If you are quoting a return make it obvious if it is a gross return of not. If it’s a target return, ensure you state it as such with a reminder that it is in no way guaranteed and give a realistic idea of timeframes for receiving returns.  If the investment is illiquid, remind the reader that the investment may not be realisable and their capital is at risk.


If your product has the benefit of tax reliefs, you will need to remind investors that this will depend on their own circumstances and that tax rules can change within the life of the investment.


  1. Do not be misleading

Misleading headlines – People are busy and often pick out the headlines and highlights when making decisions. Don’t make your customers work too hard to get the full picture, they won’t thank you for it and you could find yourself in breach of Financial Conduct Authority (FCA) rules. Don’t make past performance (no matter how impressive it may be) the most prominent feature of the communication.


Exaggerated expressions – There’s always a temptation to use lots of attention grabbing adjectives to describe your product, but unless you can provide independent source to support your claims that an investment opportunity is ‘ground-breaking’ or ‘outstanding’ it’s better to stay objective. Don’t let these exaggerated expressions of praise creep into your financial promotion.


Be honest – Financial promotions should include the good, the bad and the ugly! You will fall foul of FCA rules if you only cherry pick the best bits for your marketing materials. Investors need to be able to make an informed decision and they can’t do this if the potential ‘downside’ of an investment opportunity is missing or hidden in the small print.


The rules in this area are detailed and, as with the most complex areas of the FCA handbook, contain plenty of shades of grey. However, if you always start by ensuring your promotion is fair, clear and not misleading you’ll be heading in the right direction and your Principal firm can guide you from there.


Need some promotional advice? If you want to understand more about how to make sure your marketing materials meet FCA standards, please click here.


Download: Financial promotion guide


Get advice

The regulatory regime around financial promotions is ultimately designed to protect all parties. It’s in everybody’s interest to follow the rules, both to protect clients from risky investments and prevent firms inadvertently becoming professional enablers and falling foul of the law.


This is a complex area so if you have any doubts about whether or not your promotion comes within an exemption, the safest option is always to get it approved by an authorised firm or get specialist advice.


In the first instance, you could contact us for general guidance.


Download: Financial Promotion Guide


LS Consultancy is ideally placed to support firms of all sizes and types with this Financial Promotions review.


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