How to read between the lies

With just two months to go before the end of the tax year, fund managers are gearing up to sell as many 1999/2000 ISAs as they can before the opportunity disappears forever. You have only to look at last year's financial industry spending statistics from media monitors ACNielsen MMS to see just how important this effect is.

With just two months to go before the end of the tax year, fund managers are gearing up to sell as many 1999/2000 ISAs as they can before the opportunity disappears forever. You have only to look at last year's financial industry spending statistics from media monitors ACNielsen MMS to see just how important this effect is.

The industry's total advertising spend stood at £101m in February 1999, shot up to £113m in March and fell back to just £91m in April. As usual, by far the two biggest media for financial advertisers were direct mail, which accounted for £44m of the March 1999 total spend and press, with £37m of that month's total. Every penny of that money is spent with the sole intention of separating the punters from their cash.

All this means that customers have only a few weeks to muster a healthy degree of scepticism to set against the advertising blitz to come. Remember the pitfalls set out below, and you should be able to avoid those ads whose sparkling prose conceals a host of problems you had never even considered.

Press ads

Companies selling unit trusts or ISAs generally reserve the biggest print in their own ads for a suitably impressive growth figure from the fund's past performance. Naturally enough, each fund manager bases his own performance headline on whichever time period shows the fund in its best light.

Japanese funds provide a particularly striking example of this principle in action. Japan has had a truly rotten time in the past few years. But Standard & Poor's figures show Japanese shares started bouncing back in October 1998, and have climbed by an impressive 47 per cent since then. So any fund manager pushing a Japanese trust can give himself a nice low starting point and a near-vertical growth chart by concentrating on the past 12 months alone.

Invesco's current press ads for its ISA-friendly GT Japanese Smaller Companies Fund use just this tactic. The biggest type in the ad boasts that £7,000 invested in the fund one year ago would now be worth £39,457 - implying growth of 463 per cent. Building the ad round a five-year performance figure instead would have produced a far less impressive figure of £20,893.

James Dalby of Leeds independent financial advisers Bates Investment Services says: " I don't think they should be quoting these high, one-year performance figures. Japan's been down and, yes, it has had a good short-term pull back, but I think it is confusing. As advisers, we have a duty to point that out, and I think the product providers should do too."

Invesco's head of UK marketing Alistair Campbell replies: "You always want to promote the figure that going to make the most impact. This fund has done spectacularly well, and what we're trying to do is make sure people are aware of that."

The regulators reminded fund managers in August 1998 that all investment ads should somewhere include a performance measure taken either over the past five years or, if that is not possible, over the period since the fund's launch. The Invesco ad does include a mention of the fund's five-year growth, but relegates this to the tiny print at the foot of the page.

Campbell says: "It's there for you if you wish to read it, and obviously the advice would be that you should."

Asked if, in his experience, anyone actually reads this material, Dalby says: "We do get the odd client who's very keen, and reads everything in detail. But generally? No." In the case of the Invesco ad, the headline growth figure is given as a cash sum, but the five-year figure in percentage terms, making it hard for all but the most determined readers to compare the two on a like-for-like basis.

None of this means the Invesco fund is a bad buy, as even the five-year performance mentioned above was enough to top MoneyFacts' 14-strong Japanese Specialist sector. But the fact remains that anyone who buys into the fund expecting 463 per cent growth in a year to prove typical will almost certainly be disappointed.

Even ISA ads which use the regulators' core assumptions for their headline claim produce less than useful results where the fund involved was launched very recently. Recent press ads for Framlington's Net Net fund - launched in May 1999 - flag up growth of 88 per cent, but base this measurement on a term of only seven months.

Jackie Blyth of the Financial Services Authority says: "The key thing for advertising is that it should be fair and not misleading. We are slightly concerned by the use of very short time periods where it is very difficult for people to judge. How can you make a judgement over seven months?"

The FSA has a role not only in setting out in principle what material ads should and should not include, but also in policing those ads which violate its rules. Blyth says the most serious complaints to the FSA involve ads which bury information about risk to your capital or promise an unrealistic return.

Direct mail

The promises made in direct mail material can be just as misleading as those in the industry's press ads.

Barclays Bank recently sent out a personally addressed mailshot selling cheap loans. The mailshot was headlined "A Loan Bond Allocation of £2,000 is Reserved in Your Name". Recipients were told they had been sent the offer because of their "excellent record with Barclays Bank" and that each addressee had "already been reserved a personal loan bond allocation of £2,000" which was "waiting for" them.

One man who received the mailshot understandably concluded from this that he would qualify for one of the loans. When he applied, however, Barclays turned him down because of previous problems in how he ran his account. Barclays argued that the mailshot amounted to no more than an invitation for people with better-managed accounts to apply for a loan, which they might get or might not. The ASA disagreed, saying the mailshot "misleadingly implied that recipients were eligible to reserve a loan of at least £2,000".

Radio ads

Admiral car insurance ran into similar problems with a radio commercial broadcast on London station News Direct 97.3 FM. The ad suggested Admiral could offer savings on car insurance "no matter what you drive". One listener complained to The Radio Authority after being refused cover by Admiral because of the particular car she drove.

In its latest complaints bulletin, the Radio Authority rejects Admiral's defence that the car involved was an imported model with no UK equivalent. The authority says: "In our view this precluded the advertiser from promising the possibility of cheaper cover irrespective of the type of vehicle owned." The complaint was upheld.

Television ads

TV commercials contain little hard information, relying instead on the general impression they convey. It is sometimes instructive to ponder how these cosy scenarios might play out in the real world.

Take NatWest's current animated ads for its credit cards' loyalty scheme. These show a happy NatWest cardholder visiting Paris, London and a beach resort. The voice-over says: "Only NatWest credit cards give you Air Miles every time you spend, so if you want to see the world for free, call..."

A paragraph of printed information flashed up at the bottom of the screen points out that the cards give one Air Mile for every £20 spent. A return trip from London to Paris would cost you 450 Air Miles. But to earn that flight from your NatWest card you would need to spend £9,000.

What the ads do not mention is the fact that NatWest's cards charge a whopping interest rate of 18.9 per cent APR. British Airways equivalent cash fares for the same flight range from £64 to £332. So you would need to maintain a debt of only £334 on your card to generate a year's interest bill bigger than the cheapest BA cash fare.

NatWest spokesman Anthony Frost says: "There is no requirement to put the APR on the ad, so that's not there. Obviously, if people pay off their bills in full each month, they pay no interest at all." British Bankers' Association figures show that only one in four Mastercard and Visa holders escaped interest on their card debts in 1998.

Some TV ads cause confusion through no fault of their own. The Association of Investment Trust Companies' current commercials conclude with the slogan "It's -Investment Trusts". One viewer who called Bates Investment Services swore the ads had mentioned "Chips Investment Trusts".

Dalby says: "He was asking what chips had got to do with it. He wondered if it was to do with gambling chips."

To complain about a broadcast ad, call the Independent Television Commission (0171-255 3000) or the Radio Authority (0171-405 7052). For ads in all other media, call the Advertising Standards Authority (02075 805555)