ANALYSIS: Regulation - Misleading financial ads are the tip of the iceberg. E*Trade fine highlights size of dodgy claims problem. Atifa Hargrave-Silk reports

<p>The US$90,000 fine levied on E*Trade Securities in the US </p><p>for violating advertising rules has served to highlight one key issue </p><p>facing financial services marketers: how do you market the promise of </p><p>wealth without making guarantees or misleading statements, or raise </p><p>investors' expectations beyond reasonable levels? </p><p><BR><BR> </p><p>The second largest online brokerage in the US, which recently launched </p><p>in Hong Kong, has clearly found this a difficult balancing act. Last </p><p>month, it was fined and censured by the US National Association of </p><p>Securities Dealers. It found that E*Trade violated the group's </p><p>advertising rules in an August 1999 newspaper ad for its technology </p><p>index mutual fund and two direct mail marketing campaigns, which were </p><p>sent to 9.8 million prospective investors in 1999 and last year. </p><p><BR><BR> </p><p>Despite the fine and censure, E*Trade has refused to admit to or deny </p><p>the charge. "There has not been any finding that anyone was harmed by </p><p>the advertisements or that anybody relied on the advertisements to their </p><p>detriment," a spokesman for E*Trade said. </p><p><BR><BR> </p><p>But the case has thrown the spotlight on the challenge facing players in </p><p>the over-crowded online trading sector as regulators put the category's </p><p>advertising under greater scrutiny. It comes at a time when online </p><p>advertising efforts have been likened to lottery commercials, which lure </p><p>investors with the implied promise of quick riches, but don't mention </p><p>the risks. </p><p><BR><BR> </p><p>Locally, E*Trade has also come under fire after its spectacular </p><p>advertising debut, in which a car rams a Ferrari. </p><p><BR><BR> </p><p>Local E*Trade representatives could not be reached for comment, but </p><p>Chris Fjelddahl, managing director of Motiv8, the agency that handles </p><p>the Charles Schwab account, says: "E*Trade was set up during the boom </p><p>years when it was less shameful to talk about get rich quick schemes. </p><p>It's continued its marketing along the same lines during the downturn - </p><p>it's shamelessly straightforward in its advertising." </p><p><BR><BR> </p><p>Charles Schwab marketing director, Gary Leung, said his company has a </p><p>lengthy approval process for its ads. "Before we do anything, we give </p><p>our agency our guidelines, which clearly point out terms like 'free' </p><p>that are considered sensitive. They understand disclaimers, and that </p><p>they have to be very careful with copy." </p><p><BR><BR> </p><p>According to Leung, draft copy is checked by various departments, from </p><p>sales and marketing to risk management, before it is sent to the US for </p><p>international compliance approval. </p><p><BR><BR> </p><p>Fjelddahl says the final version of ads launched for Charles Schwab </p><p>could vary considerably from the original proposal. "There is strict </p><p>compliance with Schwab that ensures statements are not misleading. For </p><p>example, in all our marketing communications, we never hint at an </p><p>outcome for the investment." </p><p><BR><BR> </p><p>The creative for Charles Schwab's "Investor Revolution" campaign in </p><p>February, which showed a woman with a halo above her head, originally </p><p>featured her wearing a pair of horns to symbolise a bullish market. "The </p><p>problem was, the horns would have projected Schwab as a predictor, so </p><p>the original idea was pulled," says Fjelddahl. </p><p><BR><BR> </p><p>False or misleading advertising isn't confined to financial </p><p>services. </p><p><BR><BR> </p><p>Hong Kong's Consumer Council recently called for substantial changes in </p><p>the city's regulation on advertising. K. M. Lee, deputy chief executive </p><p>of the council, explains: "Since we began looking into this problem in </p><p>1999, the situation hasn't improved much. There is still a need for </p><p>legislation. </p><p><BR><BR> </p><p>At the moment there is some regulation over TV and radio broadcast, but </p><p>not over print or the internet." </p><p><BR><BR> </p><p>Lee says that during the heyday of online trading in the US, regulators </p><p>pulled many commercials which made extreme claims. Hong Kong, he adds, </p><p>lags behind other countries in terms of jurisdiction, and so the </p><p>practice of making misleading claims could worsen because companies "may </p><p>face the dilemma of either adopting similar tactics or losing market </p><p>share". </p><p><BR><BR> </p><p>Last year, the council received 19,000 complaints about misleading </p><p>advertising. </p><p><BR><BR> </p><p>According to Lee, a survey looking at ads in seven categories found </p><p>"alarming" results; almost 23 per cent of TVCs and 51 per cent of print </p><p>ads were found to contain questionable claims: "In Hong Kong, the 4As </p><p>can deal with member agencies, but no party is acting responsibly at the </p><p>moment, including the advertiser and the agency." </p><p><BR><BR> </p>