Cross-marketing products: navigating the legal issues

AFSL considerations

Marketing communications for financial products will generally contain financial product advice in the form of ‘general advice’. Under the Corporations Act, a person must hold an AFSL with the requisite authorisations to provide general advice, which will specify whether the advice can be provided to solely wholesale clients, or also retail clients.

The entity providing the marketing material should ensure:

• it has the requisite AFSL authorisations (or is otherwise properly appointed as an authorsed representative) to provide general advice to the relevant recipients (ie wholesale/retail); and

• the materials do not contain ‘personal’ financial product advice.

Privacy considerations

Privacy Act

Use of personal information

Information that is typically used to market financial products to investors (such as names, postal and/or email addresses) will constitute ‘personal information’ under the Privacy Act.[1]

Whether such personal information can be used for the purpose of marketing financial products to an investor will generally depend on whether the use and/or disclosure is:

• permitted by consents obtained from the investors; or

• otherwise permitted under the Privacy Act as a ‘primary’ or ‘secondary’ purpose of collection.

In assessing this, consideration needs to be given to the terms of the manager’s privacy policy, consents and collection statements to determine whether consent to direct marketing has been obtained. Ideally, the manager will obtain from investors a clear and express consent to use the investors’ personal information for direct marketing and the promotion of products issued/managed by group members. This consent can also assist with managing the Spam Act compliance issues discussed below.

Where this is not the case in a privacy policy, collection statement, consent or other document, there will often need to be consideration of whether the cross-marketing would be a permitted ‘secondary purpose’ for use by the fund manager. While this is sometimes the case, it can require careful analysis. We recommend managers pay particular attention to this when updating or adopting their privacy policies, consents and collection statements. Including appropriate consents as part of fund application process documentation can often assist with managing these issues.

Direct marketing

Australian Privacy Principle 7 (APP 7) also imposes specific restrictions on the way organisations can use personal information to communicate directly with individuals to promote goods or services. Marketing financial products to existing investors will generally constitute ‘direct marketing’ for these purposes.

APP 7 provides that an organisation must not use or disclose personal information it holds for the purpose of direct marketing unless an exception applies. The most relevant exception applies where the information was collected from the individual and either they:

• would reasonably expect the organisation to use or disclose the information for that purpose; or

• have consented to the use of the information for that purpose, or it is impracticable to obtain that consent,

and the organisation provides a simple means to ‘opt out’ from direct marketing.

Depending on the terms of a manager’s privacy policy and investors’ general expectations, there may be a basis for them to rely on APP 7 to send direct marketing communications. However, this needs to be considered for each organisation in light of its own policies and operations.

The Spam Act

The Spam Act is often not legislation that fund managers expect will impact them. It prohibits the sending of ‘commercial electronic messages’ (including for the purpose of offering, advertising or promoting goods or services) without the consent of the electronic account holder. Importantly, where direct marketing communications are sent via an electronic message, the Spam Act will generally prevail over APP 7.

Consent under the Spam Act can take the form of express consent or can be reasonably inferred from the conduct and the business and other relationships of the individual or organisation concerned.

Where express consent to the sending of commercial electronic messages has not been obtained (for example, an express consent as part of a fund application process, marketing opt in or as part of the investor expressly agreeing to privacy policy terms), cross-marketing would only be permitted via electronic messages if consent can be inferred from the relationship between the investor and fund manager (which needs to be assessed in the context of the particular fund manager and investor base).

There have been a number of significant regulatory enforcement actions taken by the Australian Communications and Media Authority (ACMA) against organisations that sent commercial electronic messages without having the appropriate consents in place or for other alleged Spam Act contraventions. This includes action against Commonwealth Bank of Australia (penalties of $3.55 million), Latitude Finance Australia (penalties of $1.55 million), and Binance Australia (penalties of $2 million).

Marketing to retail clients

Hawking restrictions

The Corporations Act imposes restrictions on making ‘unsolicited contact’ with retail clients to:

• offer the issue or sale of a financial product; or

• request or invite them to ask or apply for or purchase a financial product.

‘Unsolicited contact’ generally means contacting a person by telephone, face-to-face or any other ‘real time interaction’ that they have not consented to (including through artificial intelligence media such as chat-bots).

This means the form of communication with retail clients needs to be considered and an appropriate method (eg email) adopted to market to them where they have not otherwise consented to the unsolicited contact.

Disclosure requirements

Fund managers operating in the retail market are generally aware of their statutory disclosure obligations to provide a product disclosure statement (PDS) in certain situations. These include when offering to issue (or arrange for the issue of) a financial product to a retail client, which may be the case when a manager makes a communication to promote a product the investor does not already hold.

When sending marketing communications to retail clients, managers should ensure any offer made to them is only in respect of interests in a registered scheme for which an up-to-date PDS is available (and the PDS should be made available to them in the communication).

Financial services guide

In addition to the licensing considerations set out above, an AFSL holder is generally required to prepare and provide a financial services guide (FSG) if it provides financial product advice. There are some exceptions to this, including some that apply to existing investors. However, there are criteria that need to be satisfied for these exceptions to be relied upon (including in some instances that the client has already received an FSG that remains unchanged from the current version).

The FSG should be provided with marketing communications to retail investors unless the manager is certain an exemption applies to every recipient.

Design and distribution obligations (DDO)

Various aspects of the DDO regime are also relevant to cross-marketing. This includes ensuring:

• the target market determination (TMD) for the relevant product is referenced in, and made available in the marketing communication (ie in the same way as the PDS); and

• existing processes for ensuring the manager’s compliance with DDO as a distributor (such as through filtering and similar procedures) are followed in the same way as for any other investors that the product is distributed to.