Investigation into Advertising Statements of Investment Firms

1 Investigation into advertising statements of investment firms Through various media, investment firms advertise investing heavily. Therefore, we have conducted an investigation into the advertising statements of investment firms. In this investigation, we detected various shortcomings. We consider it important to provide general insight into the findings and points of attention from this investigation. In this publication, we provide a brief explanation of the investigation, and offer practical tools for the sector and insight into AFM activities. Advertising for investing. What is happening in the market? The number of consumers who invest independently, also known as execution-only investing, has increased in recent years. Between 2016 and 2021, the share of beginner investors (with a maximum of 2 years of experience) who chose this way of investing increased from 58% to 66%. In 2021, more than 1.2 million households invested independently. This increase follows various developments such as low interest rates, technological developments, such as low-threshold investment apps, and changes in the costs associated with investment services. This trend goes hand in hand with extensive multimedia advertising campaigns for independent investing. What does the AFM do in its supervision of advertisements? The AFM conducts risk-based supervision, both in our ongoing supervision and in thematic investigations. A further explanation of this can be found in the AFM supervision approach. The popularity of independent investing combined with many advertisements on various media causes us to look critically at the correct compliance with the relevant information provision requirements. Commercial interests can put customer interests under pressure. In the autumn of 2021, we conducted research at four investment firms into the compliance with the important standards that apply to advertising statements for execution-only investing. What are important standards that apply to advertising statements? Every advertising statement must independently meet various standards. An important standard is that information about financial products and services must be correct, clear, and not misleading. We have explained this standard further in our Policy Rule on Information Provision 2018. This contains a number of examples listed of incorrect, unclear, and/or misleading information. Furthermore, specifically for investment firms, information must be accurate and always provide a correct and clear indication of the relevant risks when pointing out the possible benefits of an investment service or financial instrument. When these standards are not complied with, consumers can be misled with foreseeable disappointment as a result. At the same time, this also distorts the level playing field and promotes unfair competition. With this investigation, we address these undesirable consequences. Outcomes of the investigation into advertising statements for execution-only investing In the advertising statements of the investment firms involved, we have detected shortcomings We are taking appropriate measures towards the investment firms involved based on the investigation. Below, we explain some examples of detected shortcomings, so that other investment firms can use this to scrutinize their own advertising statements and adjust them where necessary.

2 Unclear or misleading information about costs Consumers can be misled when advertising statements wrongly create the impression that there are no costs. An example of this is advertising 'commission-free investing' without being clear about possible additional costs and/or restrictions. Another example is advertising 'free investing'. Such passages make an advertising statement unbalanced and therefore unclear and/or misleading. In this regard, the AFM also refers to an ESMA public statement. Unclear or misleading information about 'transaction credit' Investment firms regularly advertise with 'transaction credit'. The term transaction credit can wrongly create the impression that there is credit with which financial instruments can be purchased. Additionally, it can wrongly create the impression that a consumer will receive the entire transaction credit immediately and can use it unlimitedly at the start of the service. Generally, a consumer cannot purchase financial instruments with the transaction credit. A consumer can only use the transaction credit when they make a transaction where transaction costs are charged and this transaction meets the conditions set for the transaction credit. A limited validity period can lead to consumers not receiving the entire credit, unless they make sufficient (large) transactions. Unclear or misleading information about risks Consumers can be misled when risks in advertising statements are downplayed or when the information is unbalanced. This is the case if an advertising statement talks about 'safe investing', without providing further explanation or context of what is meant by that. This makes an advertising statement unbalanced and therefore unclear and/or misleading. No correct and clear indication of the relevant risks Including a passage such as 'investing involves/entails risks' is not a correct and clear indication of the relevant risks when pointing out the possible benefits of an investment service or financial instrument. This is because the mentioned passage is too general to provide a clear and correct indication of the relevant risks. One way to comply with this standard can be by specifying what the risk concerns, for example, that you can lose your investment. For completeness, the AFM emphasizes that it is important to weigh the indication of the relevant risks against the context of the statement. A clear and correct indication of the relevant risks depends on the mentioned benefits (both in content and presentation) and can vary per statement. What does this investigation mean for the future? We expect investment firms to ensure that all their advertising statements comply with the relevant standards. We actively advocate for a level playing field both at the national and international levels. At the same time, execution-only investing places more responsibility on the consumer. We will therefore continuously pay attention to appropriate service provision and clear information provision. What else is the AFM doing regarding investing? Currently, we are conducting research into the cost information provided prior to a transaction in execution-only services. We are investigating, among other things, whether the cost information is provided correctly and is complete. Furthermore, we will focus next year, among other things, on the protection of investors, by looking at, among other things, the online choice environment, distribution of (new) possibly unsuitable investment products for the target group, and the independence of online available information. See also the publication of the AFM agenda 2022.

3 Authority for the Financial Markets Postbus 11723 | 1001 GS Amsterdam Telephone 020 797 2000 www.afm.nl Data classification AFM-Public