That is (technically) correct. If you run an army as the Flesh Tearers, and use any applicable rules for them (such as their Chapter Master), then you can not include any Blood Angel specific characters.
That being said... if you play Blood Angels who just so happen to be painted as Flesh Tearers, then there isn't any issue as long as you do not include any Flesh Tearer rules.
The one exception to this is if you play at major GW location like Warhammer World. My understanding is that they apply WYSIWYG to your paint scheme as well.