The Financial Markets Authority (FMA) had clearly done enough talking.
In a damning seven-page direction order issued to Simplicity last week, the regulator suggests earlier efforts to persuade the largely passive investment provider to tone down unsubstantiated marketing claims had fallen on deaf ears.
“Prior formal and informal engagement on related matters does not appear to have had the desired effect from the FMA’s perspective,” the public direction order says.
Paul Gregory, FMA director investments, said the escalation to publishing a direction order – the first issued to a named licensed provider in the wake of new advertising guidance last year – followed a number of previous conversations with Simplicity.
Gregory said most regulatory clashes with licensed firms are usually resolved behind the scenes via quiet updates to product disclosure statements, for example.
But if Simplicity didn’t get the hints, the regulatory upgrade to a public shaming over the firm’s ‘All Greys’ advertising campaign triggered a response.
Simplicity dropped the multi-channel ads, which claimed KiwiSaver members could see long-term returns up to 20 per cent above competitors, but also fought a rear-guard action against the direction order.
“It was submitted that Simplicity has already complied with some of the directions and indicated that it will do so going forward – and because of this there is no need to issue a direction at this time. We do not accept this submission,” the order says. “By issuing the direction the FMA will have greater enforcement options should Simplicity breach the direction.”
The $4.5 billion investment scheme also argued that as the campaign “resulted in a non-material increase in new members for Simplicity”, there was no need for a public direction order.
“We note that even if this is true, the impact of the campaign on the general perception of Simplicity’s brand is likely to give it an unfair competitive advantage and so it is important to send the message to Simplicity and others that the FMA will take meaningful action in these types of circumstances,” the regulator says.
The FMA estimates the All Greys campaign likely lured more than 250 members into the Simplicity KiwiSaver scheme.
As part of the wide-sweeping direction order, Simplicity will have to write to all members that joined the scheme between August 20 and November 30 last year advising that the ad claims were “misleading, deceptive and unsubstantiated”.
Furthermore, the ruling puts the Simplicity marketing department on enhanced compliance watch for the next two years while also requiring the provider to pull down its so-called ‘Difference Calculator’.
Gregory said the Simplicity did not disclose the underlying assumptions used in its calculator, which compares long-term returns after fees among providers.
The order also requires Simplicity to “conduct a compliance review of the Difference Calculator and report in writing to the FMA, within 20 working days of receiving this Direction, confirming compliance with the applicable fair dealing provisions of the FMC Act”.
Licensed investment providers are required to use standardised assumptions (following the Sorted website lead) in publicly available calculators, or adequately justify any deviation from the norm.
Simplicity might have the dubious honour as the first licensed investment scheme to cop a public lashing from the FMA over advertising claims but the regulator has fired a few warning shots.
Last year, for instance, the FMA effectively banned providers from using “phenomenal” 12-month return figures garnered in the usual post-COVID crash period: the move followed complaints about NZ Funds KiwiSaver ads but was positioned as an industry-wide guidance.
And late last year, the regulator also forced property investment group, Du Val, to drop a potentially misleading ad campaign. However, as a wholesale operator Du Val falls outside the more strictly regulated full licensed regime, a particularly important factor in light of Simplicity’s recent appointment as a default KiwiSaver provider, according to the FMA.
“Simplicity’s standard of conduct should reflect its status as a default KiwiSaver provider,” the direction order says.
Gregory says the FMA weighs up any potential commercial damage against the public interest when issuing such orders.
“It’s important for businesses to consider [the potential consequences] before they advertise,” he said.
Simplicity chief, Sam Stubbs, declined to comment.