FMA directs Simplicity to address misleading KiwiSaver advertising

The Financial Markets Authority (FMA) has issued a direction order to licensed fund manager and default KiwiSaver provider, Simplicity NZ Limited (Simplicity), to address misleading advertising and improve compliance processes.

Links to FMA media release and the FMA’s direction are available.

Who needs to read it?  Why?

All financial product and service providers should take note – as the ‘fair dealing’ provisions under part 2 of the Financial Markets Conduct Act 2013 (FMCA) also apply to those providers.

What does it cover?

The direction relates to Simplicity’s “All Greys” advertising campaign in 2021, which included the prominent statement “get out of the game when you want to, retire with up to 20% more than the average KiwiSaver plan” (the Advertising Claim).

As a whole, the FMA found that the overall impression created by the campaign was that by joining the Simplicity KiwiSaver scheme, a member will likely have a projected balance upon retirement 20% greater than the average KiwiSaver scheme.

However, the Advertising Claim was based on the present value of the benefit of paying Simplicity’s fees relative to a higher average KiwiSaver fee, for a 45 year period. It also assumed that all other factors were equal (including investment returns).

The FMA considered that this Advertising Claim:

  • was likely to mislead or deceive customers, for reasons including the following:
    • the underlying assumptions in making the Advertising Claim (in particular, that Simplicity’s fees would not change for 45 years and that all other factors were equal) is not reasonable;
    • assumptions for the Advertising Claim (e.g. the impact of paying lower KiwiSaver fees) were not disclosed as context in the advertisements;
    • statements about Simplicity’s low fees did not appear on all social media or website or digital banners. Nor did the FMA consider those words would cure the misleading and deceptive effect; and
    • links to other pages to “find out more” did not explain the underlying assumptions of the advertising. Even if those links did contain information it required viewers to find that information. However, the FMA is concerned with the overall impression of the advertising campaign.
  • was an unsubstantiated representation, because the key assumptions and grounds that Simplicity relied on were not reasonable grounds for the representations made.
  • relates to a material contravention of ss 19 and 23 by Simplicity, because:
    • the campaign ran across social media, news website banners, TV’s and prominent billboards;
    • the Advertising Claim gave Simplicity an unfair competitive advantage, likely resulting in new members for Simplicity; and
    • from prior engagement with the FMA, Simplicity was aware of the FMA’s views that fee saving projections should be delineated from KiwiSaver balance projections, that any balance projection required sufficient contextual disclosure, and that Simplicity’s standard of conduct should reflect its status as a default KiwiSaver provider.

The FMA issued a number of specific directions, including directing Simplicity to stop publishing the advertising materials in question and ensuing all future promotional materials are not likely to mislead or deceive investors.

Our view

This is the first direction notice for misleading advertising published by the FMA, following the release of its Guidance note on Advertising offers of financial products under the FMC Act (FMA Guidance Note) late last year. There is particular interest around the advertising of returns which is discussed in the FMA’s Guidance Note, as seen in the case of Simplicity and the FMA’s warning to fund managers on advertising investment returns last year. There is also interest in how risk is communicated (e.g. as referred to in the FMA’s previous directions on misleading advertising last year to Du Val and Rockfort).

As previously flagged, we expected to see continued scrutiny in the application of the fair dealing practices in the financial services industry by the FMA and competitors. Here, the FMA specifically flagged that “[t]his case sends a signal to the financial services sector that we will continue to use our powers to sanction providers who make misleading claims in their advertising, as set out in our guidance.”

The FMA made specific directions on compliance procedures (e.g. to implement Simplicity’s advertising policy and report FMCA compliance practices to the Board). In light of this, financial services participants should take this as a reminder to check their compliance policies and ensure processes are consistent. As a part of this, businesses should have regard to having board and senior management involvement (as discussed in the FMA’s guide to good conduct).

Finally, we note that in making its direction, the FMA considered the extent of the breach and Simplicity’s prior engagement with the FMA which “did not have the desired effect from the FMA’s perspective”. There were submissions that Simplicity had already complied with some of the directions and that the breach was unintentional.

The FMA’s decision here to issue the direction is generally consistent with the FMA’s speech on its enforcement approach – which clarified its expectations around inadvertent misconduct and engaging with the FMA’s team prior to enforcement action. See our previous note on FMA enforcement here.

What next?

If you have any questions in relation to fair dealing rules or FMCA compliance generally, please contact one of our experts.

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