Fintech slapped with fine for false and misleading marketing

A superannuation-focused fintech group has been put on notice over marketing materials it distributed in 2015 made misleading claims about investor returns.

The court found that Squirrel, a fintech platform that allows consumers to manage their retirement savings through an SMSF, distributed a brochure conveying misleading representations about residential property investment returns at a seminar and via email on about 9,420 occasions, between March 2015 to January 2019.

ASIC issued two infringement notices to Squirrel regarding the same conduct in October 2018 which Squirrel failed to pay. ASIC then took the matter to the Federal Court in December 2020.

The court found that the brochure, titled ‘How buying established residential property can super charge your superannuation?’, made a series of misleading representations, including that residential property in metropolitan locations was likely to double in value every seven to 10 years and generate a rental return of around 4 to 5 per cent per annum.

Moreover, the brochure claimed that purchasing an $800,000 residential investment property using a 25 per cent deposit from an SMSF and taking out a mortgage for the balance would produce an average total annual return of 14 per cent. It also falsely alleged that the costs of managing an investment property through an SMSF are “surprisingly low” compared with using a financial planner to select a series of managed investment funds.

The brochure also contained phrases including that “there is a remarkable difference in returns between investing in a regular superannuation fund (7 per cent) and using an SMSF that purchased residential property (14 per cent)”.

“The SMSF sector holds an estimated total value of assets of just over $876 billion. Misleading information about SMSFs can greatly impact the sector so it is important that clear and accurate information is provided to those looking to set up an SMSF,” said ASIC deputy chair Sarah Court.

Justice Burley of the Federal Court noted that “Squirrel’s misconduct was compounded when it continued to disseminate the brochure after receiving verbal feedback from attendees [following a seminar] in April 2015 and, more particularly, after it had received notification from ASIC about its concerns in July 2018”.

“The fact that Squirrel approved and distributed the brochure over an extended period may be taken to reflect a poor corporate culture of compliance and indicate that Squirrel had inadequate systems in place to ensure compliance with the Act,” Justice Burley explained.

His Honour also drew attention to Squirrel’s mixed record regarding its relationship with ASIC, having on several occasions misled the corporate regulation.

In August 2019, Squirrel was placed in voluntary administration. Squirrel is now under new management.