Branding: No such thing as a free deal

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: CHUNT@EUROMONEY.COM

By:
Published on:

Was there an ulterior motive for CMC Group’s decision to drop the deal4free brand?

The recent decision by CMC Group to rebrand globally as CMC Markets has brought to an end its use of deal4free.com as a trading name. According to the company, the decision was made as part of a strategic plan to adopt a unified global brand, which would help it consolidate its recent expansion and facilitate growth.

In a statement, CMC Market’s chairman, Peter Cruddas, said: “The CMC Group and deal4free.com names have been exceptionally powerful in recent years and have without doubt helped us establish our market-leading position in the UK. However, now that we have seven offices across the globe and clients in more than 100 countries, we need to ensure that there is a single cohesive brand that works – regardless of the territory’s rebranding.”

There are whispers in the market that the real reason the deal4free name was dropped was because CMC was running into problems advertising its services as being free. CMC is believed to have been prevented from using the deal4free name in Australia, mainly on the basis that it charged commission. The company says it notified its Australian clients about commission charges and its rebrand in December 2003.

Rivalry

It is not unknown for UK spread-betting companies to report each other to the UK’s Advertising Standards Authority. In February 2004, CMC’s rival, IG Index, decided to lodge a complaint with the ASA over three adverts that CMC had posted in specialist magazines and at selected London railway stations.

IG objected that the deal4free trading name was misleading. It argued that this implied that dealing with CMC was always free. IG highlighted what it said were a number of charges that CMC’s customers regularly incurred.

The first of CMC’s adverts stated: “At deal4free.com, we’re not only committed to offering you some of the tightest dealing spreads in the Financial Services Spread Betting market, but also to giving you one of the most innovative and sophisticated on-line trading platforms available ... In addition, Financial Spread Betting offers you a totally tax free way to trade the world’s finance markets... deal4free.com.”

Free trade

The other two specifically stated that dealing with deal4free was commission-free. CMC argued that the deal4free brand was recognized in the industry as being synonymous with commission-free dealing. It added that because it did not charge customers commission on contracts for difference and FX trading, they were able to deal for free, which was not the case if they traded directly on to exchanges.

However, CMC did admit there were various charges customers could incur, such as market close charges and guaranteed stop fees. However, it argued that these charges were optional and could be avoided.

In its adjudication, dated August 24 2005, the ASA said it understood that CMC’s intention was to show that clients could trade without paying commission, but that not all of the advertised services were totally cost-free. Interestingly, the ASA did not receive any complaints from CMC’s customers.

Ultimately, the ASA said that because the second two adverts stated explicitly that the services being offered were commission-free, they did not imply that trading through CMC was completely free of all charges. Therefore, it ruled that the adverts were not misleading.

However, it stated that the first advertisement did not make clear that CMC’s services were commission free only; therefore, they implied they were completely free of charge. As a result, it ruled that the advertisement was misleading and told CMC not to repeat the claim without qualification.

CMC is believed to have decided early on in the protracted saga with the ASA that if it lost the case, it would simply drop the deal4free brand. The need for a global brand applicable to all of its services obviously made the decision easier.