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

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

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