A recent decision by the Federal Court reiterates the importance of ensuring that promotional and marketing materials for financial products fairly represent the product, features and risks and comply with ASIC's Regulatory Guide 234 on Advertising financial products and services (including credit): Good practice guidance, to mitigate against the risk of ASIC taking any enforcement action for misleading or deceptive conduct or false or misleading representations.
It found that the Mayfair group of companies engaged in conduct that was misleading or deceptive conduct and made false or misleading representations through its promotion and marketing of certain promissory notes that, among other things, created the impression that they were comparative and similar in risk profile to bank term deposits.
In this article, we outline the key takeaways from the Federal Court's decision in ASIC v Mayfair Wealth Partners Pty Ltd (No 2) [2021] FCA 247 and what companies should consider to ensure that promotional or advertising materials do not fall afoul of the prohibition on misleading or deceptive conduct.
ASIC's current focus on advertising and promotional materials
The misleading or deceptive conduct provisions in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Act 2001 (Cth) have been the subject of many enforcement proceedings commenced by ASIC in recent years in relation to the provision of financial products and in particular in the superannuation context. The Mayfair case follows on from ASIC's successful prosecution of a misleading or deceptive claim against Port Phillip Publishing Pty Ltd.
ASIC's Deputy Chair Karen Chester described the Mayfair case as "a warning that ASIC will not only take action where investments are marketed as safer, lower risk, or more liquid when they are not, but when search engines are used in a misleading or deceptive way to entice investors to products they are not searching for".
ASIC has publicly stated that it is actively monitoring financial services advertising during the COVID-19 pandemic. It has also established a cross-team advertising working group focused on looking for advertisements that are misleading or deceptive, or help ASIC identify products or services that are unsuitable or inappropriate and may be seeking to exploit people.
What are the key takeaways from the Mayfair case?
Provide the complete picture when drawing comparisons with other products
The Court found that the Mayfair products (which were promissory notes) were different to term deposits in a number of respects, such that they were not comparable or a proper alternatives to each other. In particular, in creating the impression that the Mayfair products were comparative to bank term deposits, the promotional materials did not refer to the differences between the two types of products. The representation that the Mayfair products were comparable to term deposits in marketing materials, including that the Mayfair products were similar in risk profile to term deposits, was found to be misleading or deceptive and also false or misleading.
The Court's findings are consistent with ASIC's expectations in RG234 which states that when comparing products, the products should have sufficiently similar features to make the comparison relevant and not misleading. A comparison may also be misleading whether only one feature of the product is highlighted. Any comparison should also clearly disclose any limitations of the comparison.
Be wary of how sponsored link internet advertising is utilised
Mayfair had submitted certain keywords to Google and other search engines such that websites for Mayfair's products appeared as sponsored links when consumers searched for "term deposits". The Court found that this indicated a targeted marketing strategy to direct internet users when searching for "term deposits" to divert them to their own websites promoting the products. This evidence was relied upon by the Court to support a finding that a representation was made to investors that the Mayfair products were comparable and similar to term deposits, which representation was false or misleading.
It is well established that a representation through sponsored links is made by the advertiser, not Google. When utilising sponsored links as part of a marketing strategy, care should be taken to ensure that the keywords or titles of those sponsored links do not mislead consumers.
Avoid words or phrases that can convey different meanings
The Court accepted ASIC's submission that as the words used in advertising or promotional material are capable of conveying different meanings, the relevant question is whether the meaning said to be false or misleading is reasonably open and may be drawn by a significant number of persons to whom the material is addressed. The Court will ultimately consider the effect of the material on ordinary or reasonable members of the class in question, all of whom are presumed to protect their own interests.
The key takeaway from the Court's approach to determining misleading or deceptive conduct in this context is that in preparing promotional material, the language should be as clear as possible having regard to the fact that consumers generally may have varying levels of knowledge and financial literacy.
The key issues to consider when preparing promotional materials for financial products
- Do the promotional or advertising materials comply with ASIC RG 234? Do they clearly and accurately describe a particular product? Do they paint a clear and balanced picture? Are risks, fees and drawbacks clearly described and presented? Are costs realistically presented?
- Have you documented the rationale or assumption for making any representations? That is, are there reasonable grounds for making the representations? This will be pertinent evidence in defending any allegations of misleading or deceptive conduct.
- Have you considered the characteristics of the target audience in preparing the promotional materials? For example, are the promotional materials targeting sophisticated or institutional investors, or ordinary consumers with limited financial literacy? Have you considered how the target audience will understand the information contained in the promotional materials?