Ultiqa Lifestyle Promotions sells timeshare memberships for holiday accommodation. Memberships cost $23,000 up-front then $800 per year, on the average.
According to its website, Ultiqa members receive ‘points’ which they use to book ‘self-catering resort-style accommodation’ in one, two or three bedroom apartments or units in the location of their choice in Australia, New Zealand and Fiji. Through its affiliation with RCI, Ultiqa members can book at over 4,500 resorts worldwide.
The Ultiqa points system is attractive to timeshare users because it is more flexible than conventional timeshare ownership which is restricted to the same period of holiday at the same resort year after year. It is a financial product because of the ‘points’ system.
ASIC regulation of timeshare schemes
ASIC (Australian Securities & Investments Commission) regulates timeshare schemes as a financial product under the Corporations Act 2001 (Cth) (the “Act”).
According to the ASIC media release, the Ultiqa Lifestyle Scheme is one of approximately 15 registered timeshare schemes currently operating in Australia. Up until January 2020, it was one of approximately five schemes issuing interests to new members. Data provided to ASIC by the Australian Timeshare and Holiday Ownership Council indicated that there are currently approximately 180,000 timeshare members in Australia.
Ultiqa was compliant with requirements to sell timeshare. It held an AFSL (Australian Financial Services Licence). Its timeshare schemes were registered as managed investment schemes.
ASIC issued Report 642 Timeshare: Consumers’ experiences on 6 December 2019 which showed a high-level of discontent amongst timeshare participants. This laid the groundwork for ASIC to take legal proceedings against timeshare companies.
Ultiqa was already in ASIC’s sights. In 2018, it fined a financier which financed the purchase of memberships in Ulltiqa Lifestyle for responsible lending failures $135,000 and ordered it to pay up to $3 million in compensation to consumers – See ASIC media release.
Acting on complaints by consumers, ASIC has commenced proceedings against Ultiqa in the Federal Court of Australia seeking declarations, pecuniary penalties and other orders.
ASIC alleges that Ultiqa’s Authorised Representatives did not act in their clients’ best interests in giving financial advice to consumers to buy timeshare products and in particular, did not give appropriate financial advice based on clients’ circumstances.
According to research by ASIC, consumers were dissatisfied with:
- the long-term nature of contracts, which typically range from 20 to 99 years
- the high upfront costs of joining which average $23,000
- the ongoing annual costs of membership which average $800
- the fact that many consumers often need to borrow to make the membership purchase, with 48% of consumers taking out a loan to buy a membership
- the high cost of loans taken to purchase membership, with an average loan cost of $19,699 and an average interest rate of 13.51% pa
- the fact that timeshare memberships are often difficult to exit.
The Ultiqa sales process
ASIC has focused on the Ultiqa sales process.
As you might expect, it was sophisticated and tightly managed. It was a 3-part process.
These descriptions are copied from the Originating Process in the Court proceedings:
Part - 1 the ‘bait’:
- A marketing consultant would approach consumers at a shopping centre, theme park or similar location and would give the consumers a scratch card. If the consumer scratched three matching symbols on the card, they may be entitled to win a prize.
To be eligible for the prize, the consumer was required to be married or living as a couple for a minimum of two years, aged between 28 and 65 years, and have a minimum combined annual income of $50,000.
To receive the prize, the consumer was required to attend a 90-minute sales presentation;
Part 2 - the ‘qualifying’ the consumer:
- Upon attendance at the sales office used by Ultiqa’s Authorised Representatives, the consumer was required to complete a document called a “Lifestyle Survey”.
The Lifestyle Survey recorded the consumer’s name, age, employment, marital status, address, combined yearly income range, and whether the consumer was a homeowner;
the consumer would then be seated with one of Ultiqa’s Authorised Representatives, who would obtain information from the consumer about their holiday preferences, including the frequency and approximate cost of the consumer’s holidays. This was recorded in a document called a “Holiday Survey”.
Part 3 - the ‘sales pitch’ and ‘closure’:
- The Authorised Representative would then give a presentation to the consumer about purchasing interests in the Ultiqa Scheme; and at the conclusion of the presentation, the Authorised Representative would provide the consumer with a Statement of Advice which recommended a purchase of interests in the Ultiqa Scheme.
Ultiqa required its Authorised Representatives to follow an approved sales script, to use a “T-sheet’ and a template Statement of Advice. No changes or departures were permitted.
Contraventions of the Act
ASIC’s case is that Ultiqa, as a provider of financial products, failed to take reasonable steps to ensure that its Authorised Representatives (in giving financial advice in the sales process) complied with the Act.
ASIC alleges four breaches of the Act:
1. The provider must act in the best interests of the client in relation to the advice (s 961B)
Breach: by not making clear the product recommended was a timeshare or that they were giving financial advice or that the advice was limited; by not identifying (or sufficiently identifying) the financial circumstances of the consumer sufficiently to recommend the financial product; by not investigating alternative products or strategies.
2. The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client (s 961G)
Breach: by recommending the purchase of a timeshare which was inappropriate for the personal circumstances and risk profiles; by not appropriately addressing or recording the increase in the level of borrowing; and without explaining or warning of the risks of the absence of a secondary market for the sale of timeshares, the difficulties in booking holiday accommodation and the borrowing risk.
3. If the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of [the provider/Authorised Representative] the provider must give priority to the client's interests when giving the advice (s 961J)
Breach: by paying a commission to the Authorised Representatives on a successful sale.
4. Ultiqa failed to comply with the obligations of honesty and fairness (s 912(1)(a))
Breach: by failing to provide Authorised Representatives with appropriate documentation with appropriate procedures, to enable the objectives, needs, risk profile and relevant personal circumstances of the consumers to be obtained; failing to provide appropriate training, appropriate monitoring and supervision; and failing to carry out relevant auditing following the provision of advice.
Significance of the proceedings
Extracts from ASIC media release:
ASIC Deputy Chair Karen Chester said, ‘Timeshare schemes are complex financial products. They can be difficult to understand and compare with other products, and involve long-term financial commitments. Consumer harm can and has resulted when consumers are not aware of the up-front costs, ongoing fees or the nature of their investment - like how easy (or not) it is to exit.
‘This is the first time ASIC has taken action against a timeshare provider in relation to financial product advice practices. The timeshare industry is on notice to ensure existing compliance and advice practices comply at all times with the obligations on all financial advisers, especially for that advice to be in the consumers’ best interests,’ concluded Deputy Chair Chester.
The terms ‘sales’ and ‘marketing’ are commonly misunderstood and are conflated to ‘sales and marketing’. Although the two have some commonalities, they are markedly different business functions. For clarity, marketing is used by a company to attract customers attention and maintain their interest prior to the customer speaking to a salesperson. In contrast, ‘sales’ is the activity performed by a salesperson to close the deal.
In the timeshare industry, the task of ‘sales and marketing’ is combined – it is performed by commission-driven salespeople who both attract and convert prospects.
- It often takes place at a theme park or resort. Lured by the promise of ‘you have won a prize’ through a lottery style competition, the client finds themselves sitting through a high-pressure sales presentation.
- The presentation begins with a thinly veiled ‘qualifying process’ designed to gather information, with the purpose of ‘weaponising’ the information later in the sales process to overcome customer objections. For example: “but you said earlier that you feel stressed, you work hard, and you believe your family deserves a luxury holiday every year. What has changed in the last half an hour?” The presentation ends with the client signing a contract and paying the up-front payment.
- This type of high-pressure sales tactics is surprisingly effective on unsuspecting consumers. Data from the USA estimates that 1 in 10 prospective customers who sit through the entire sales presentation make a purchase.
P.T Barnum, the 19th century American showman is often attributed with the quote: "There's a sucker born every minute". Timeshare sales exploit this truism.
I can’t help but think that this phrase aptly describes the attitudes and behaviors of the timeshare industry. The faster these outdated, high pressure and dishonest sales tactics are eliminated from society – the better! I will be watching the progress of ASIC’s prosecution with great interest.