MISLEADING FINANCIAL ADVERTISEMENTS

There is a need for a common code that brings banks and insurance companies on par with mutual funds

Moneylife’s website wrote on 17th February about HDFC Life’s advertisement about a pension product with a tag line “Taaki kal, bilkul aaj jaisa ho”. The translation: “so that

tomorrow may be just like today”—in terms of financial well-being. The advertisement has a wise guy telling his wife that she can continue to splurge on frivolous purchases because he has taken care of their future by investing in HDFC Life’s pension product. The problem, as Moneylife pointed out, is the screwed up math of the advertisement. It suggests that Rs5,000 per month invested in a pension product for 20 years will earn a lifelong retirement pension of Rs11,659 per month. Why is this misleading? Because the value of Rs11,659 after 20 years at 9% inflation is just Rs2,081—which cannot allow the couple to enjoy their lifestyle of today. What is worse, as Moneylife pointed out, a saver would get a significantly higher return by investing in Public Provident Fund which is not taxable, unlike a pension plan. Curiously, while J Hari Narayan, the outgoing insurance regulator, expressed remorse at the toxic insurance products that were sold to the gullible investors, he did nothing to stop misleading advertisements.

Jago Investor, a personal finance website, put out an email on how numbers are ‘tweaked and framed’ to make a product look like a fantastic deal. State Bank of India (SBI), advertising its 5-year tax-saving deposit (deduction of up to Rs1 lakh from taxable income under Section 80C), says it will fetch a yield of up to 17.39%. The trick is that it omits to mention the post-tax return which is substantially lower. Moneylife had written about how SBI, India’s largest bank, had issued exactly the same misleading advertisement last year as well. But, since the banking regulator has no rule on misleading advertisements, SBI and other banks too can get away with such mischief.

The only regulator to fix the problem of mis-selling of mutual funds is the Securities & Exchange Board of India (SEBI). Its definition says, mis-selling is not restricted to false statements, but can also happen by ‘concealing or omitting material facts’ or ‘concealing associated risks’ and not taking care to ensure ‘suitability of the scheme to the buyer’.

Investors have the option of complaining to the Advertising Standards Council of India (ASCI), but that won’t work either. ASCI’s advertising code, which is the strict yardstick by which its complaints committee judges advertisements, does not provide for the peculiar nature of financial advertisements, which cause great financial damage by simply omitting key details. By ASCI’s current code, as long as the advertisement has disclaimers and seemingly correct calculations, there is nothing it can do.

What then is answer to the damage caused by misleading advertisements? Clearly, we the savers will need to get together to force all regulators to form a body like ASCI to formulate a code that is applicable across the financial sector.