Spin Doctors' In The Financial Domain

31 Aug, 2002                   

The contemptuous remark about statisticians ('lies, damn lies & statistics'), may well be paraphrased for the advertising industry in some parts of the world. In particular, there is a new genre of 'spin doctors' emerging in this segment, accompanied by a heavy burst of hype. The media outpourings cannot be called untruthful but could well be somewhat misleading. This became a big issue in the Western world in the middle of last Century and is now catching up with the emerging economies in this region.

The U.S., a litigious society, saw a number of law suits quickly followed by a rash of regulations that detailed as to what financial institutions could say about their products and services in public advertisements. Most regulators are, naturally, concerned about the impact on an unsuspecting retail public. But this regulatory activism led to one unfortunate tendency, which is to force companies to cram as much of detail, in small print, like the back of an insurance policy. While, from a legal point of view, the financial institutions can wash their hands off to say that they pointed out all the terms and conditions and all the risk factors, it would really need nothing less than a lawyer to read and make meaning out of the highly complex language that is often put into such offer documents. In certain jurisdictions, such as the U.K. and India, the regulators went one step further. The capital market regulators asked that all the risk factors of an investment be given (health) warnings in big bold letters and not swept into small print. Organisations again got around this by producing offer documents that were so thick and fairly drab in terms of repetitive enumeration of all the risk factors. This resulted in investors missing the "wood for trees!".

Ultimately, there is such a thing as ethical advertising and promotion. But it is difficult to draw the line between the 'buyer beware' - type techniques on the one hand, where the onus is very much on the banking public and the investors, to check out and understand details and on the other, a series of disclaimers, that protect the institutions themselves against frivolous and aggrieved but unjustifiable law suits. Both are legitimate concerns and achieving a fine balance between the two, often becomes a critical issue.

In the UAE, the financial markets are as yet, developing. While some of the complex products, normally available in other markets, need to be brought in, to meet the requirements of a certain segment of sophisticated investors, the banks and financial institutions have a huge and challenging task in their hands, in terms of simplifying these products and services. Ultimately, the intelligent financial minds, need to interpret not just as a specialist would do but also try and translate it into simple terms for the benefit of the common investors. Many of them do have an innate understanding of the risk-reward ratios but are often baffled by the jargon. This is where advertising agencies come in.

Good communication will have to have a simple message, readily understood and at the same time, ought not to hide or mislead the underlying risks and facts. Therefore, ethical advertising, in a sense, is all about proper disclosure, in an interesting manner. The cost risks to the common man should be brought out clearly.

The authorities are naturally concerned about all this, especially when it affects the small customers that may rely on their licensing regime. Most global central banks exempt large institutions and high net worth individuals from the purview of their investor protection schemes. The simple reason is that they are expected to know and understand as to what they are investing in. Where necessary, they can also engage external advisors and consultants to a proper due diligence and thereby enhance their understanding. Besides, all these insurance and protective (depositor insurance etc.) schemes, are not to bail out unviable and reckless conduct by banks but the hapless retail customers.

Regional financial advertising sometimes tends to be the type that FMCG (Fast Moving Consumer Goods) are used to i.e. high on colour, glitz, glamour and low in terms of conveying critical information. No one is suggesting that financial advertising should assume the form of an announcement i.e. dull, factual and verbose. But equally, unlike consumer products such as clothing, electronics or mobile phones or tooth-paste, financial advertising would be more akin to medical or healthcare advertising i.e. in line with promoting a new medicine or a new health initiative. One will need to be careful in advising that there are no miracle cures or offerings, that can transform the physical or financial health of an individual!

Ultimately, all this dilemma and debate boil down to the fact that there is no free lunch. As long as financial advertising is done with transparency and honesty, there is no reason why the mass media should not be used, to reach out to the potential audience far and wide, be it in the health care or the financial sector, to benefit ultimate consumers / customers.

At the moment, the banks use the mass media for their credit cards and their retail loan offerings. In the UAE, this is done, it would appear, almost with a vengeance. In some instances, the authorities and the intelligentsia are rightly concerned that ipso facto, the hype and hoopla may be encouraging a level of leverage in the domestic society that may later on, create socio-economic problems at the macro level.

This is again where the advertising agencies in the UAE, need to develop a code of conduct and work closely with the authorities, so that consumer complaints and redressal thereof, do not become an issue, when the chips are down! Larger financial organisations, do have certain internal policies and guidelines developed on their own. It may just be that voluntary regulation is a preferred mode than any official scrutiny or censorship of commercial or financial advertising. If however, that voluntary restraint and initiative are not shown in a pro-active and healthy manner, and provokes the ire of the authorities, then what can be expected (and no complaints please!) will be heavy-handed regulatory oversight, which may be to the detriment of the "ideas industry", which is what advertising should be all about.

It may be a good idea for the industry association, therefore, to initiate a debate on this as soon as possible, so that this issue is discussed dispassionately and some norms are evolved for the collective good.

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.)

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