07 October 2021

FMA directs Du Val to remove misleading advertising

Media Release
MR No. 2021 – 48

The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko – has directed property development and investment company Du Val to remove advertising materials likely to mislead or deceive investors.

The FMA considered statements by Du Val in relation to its Mortgage Fund Limited Partnership (“fund”) contravened ‘fair dealing’¹ provisions in the Financial Markets Conduct Act because they created the impression investing in financial products connected to property development was low risk. In fact, property development, including associated finance, is inherently risky.

Du Val’s statements, detailed in the accompanying copy of the direction order, included:

  • representing the fund had “the best of both worlds”, with high security and high return and comparing it favourably to bank term deposits but without a balanced view of the risks; and
  • claiming there were “no fees” associated with the Mortgage Fund, despite the company retaining any profit on projects above the return to investors. The FMA concluded Du Val receiving 100% of all profits above the 10% fixed return to investors was effectively a performance-based fee and Du Val was not transparent about this.

The statements appeared at various times on Du Val’s website and social media channels. The FMA initially raised concerns with Du Val and the firm took some steps to amend or remove its advertising materials. However, the regulator considered its concerns were only partially addressed and continued to see Du Val marketing materials as likely to be misleading.

Requirements of Du Val’s direction order
The direction order requires Du Val to cease publishing the specific materials in question from all its channels and ensure future materials are not likely to mislead or deceive about the inherent risks of financing property development projects. When advertising the fund, the firm must also exclude any references to term/bank deposits and other low-risk financial products relating to property development and ensure its revenue generating and sharing methods are transparent alongside any claims about no or low fees.

Paul Gregory, FMA Director of Investment Management, said the FMA assessed the seriousness of Du Val’s contraventions and decided a direction order was the appropriate and proportionate regulatory response. “The direction order requires Du Val to demonstrate how it is rectifying its advertising practices. Importantly, we expect Du Val to make changes across all its financial product offers, not just the Mortgage Fund,” he said. Mr Gregory confirmed the FMA has not ruled out further action but the direction order is focused on addressing an existing and ongoing risk of harm to investors from advertising materials.

Du Val must report its compliance with the direction order to the FMA within 10 working days. Within 20 working days Du Val must confirm how it has reviewed its advertising process to ensure future compliance.

The direction order was issued under section 468 of the FMC Act, which allows the FMA to make a direction order if it is satisfied an entity has contravened, or is likely to contravene, a range of provisions in the FMC Act, including the fair dealing provisions.

The FMA has been advised that Du Val intends to appeal certain aspects of the FMA decision.

Wholesale investor exclusion – broader issues

Du Val’s offers used the wholesale investor exclusion in the FMC Act. The wholesale exclusion is designed for investors considered highly experienced and/or well-resourced (such as investment institutions). Individuals typically must reach a monetary or investment experience threshold to qualify as a wholesale investor.

The FMA advises less-experienced investors to stay clear of wholesale offers or, if they believe they may be able to meet the requirements, to seek independent financial advice before investing.

Mr Gregory said: “This case was particularly troubling because Du Val appeared to be using social media and other online channels to target less experienced investors. Firms making wholesale investment offers must comply with fair dealing provisions, and in particular, must not mislead or deceive potential investors.”

Mr Gregory said the regulator had signalled repeatedly since the start of the year that it was monitoring how the industry is using the wholesale exclusion. Less-experienced investors have become increasingly interested in different types of offers, substantially due to low returns on fixed-term deposits and other low-risk investments with which they had previously received satisfactory returns. The FMA is concerned some investors in this vulnerable situation are drawn to high-risk products claiming to better term deposit returns with similar low risk, as exemplified by Du Val’s advertising.

“We have become increasingly concerned about wholesale offers spreading into mainstream advertising, especially through social media, where the notion highly experienced investors are the target market becomes questionable. We expect entities relying on the wholesale exclusion to learn from this case and reflect on their own marketing practises,” he said.

In addition to considering advertising in this space, the FMA has confirmed previous public signals that it will also be looking at industry-wide use of the wholesale exclusion and, in particular, if the “self-certification” exclusion is being used appropriately.

The FMA consulted on its draft guidance on advertising of financial products earlier this year. The final guidance will be published this month and will include guidance that if an offer is only available to wholesale investors the advertisement should make it immediately and prominently clear that it is not suitable for retail investors.

Download Direction Order: Du Val Group NZ Limited and Du Val Capital Partners Limited



¹ The ‘fair dealing’ provisions in the FMC Act prohibit:

  • misleading or deceptive conduct, including conduct which is likely to mislead or deceive; and
  • false, misleading or unsubstantiated representations.

Media contacts:

Andrew Park
FMA Media Relations Manager
[email protected]
021 220 6770

Campbell Gibson
FMA Senior Adviser, Media Relations
[email protected]
021 945 323