The Australian Securities and Investments Commission (ASIC) has revealed that it put a number of managed investment schemes “on notice” that they must do better in providing information to investors, stating that it was concerned to find funds were providing inadequate or inaccurate facts to consumers.
A statement from ASIC illustrated that it was “seriously concerned” about three issues in particular:
- Unbalanced comparisons – which focused only on one aspect of a fund, such as higher returns – without a fair and balanced indication of key differences and risks.
- Safety and stability representations – which promoted funds as having little or no risk of capital loss, despite the fact that underlying assets were subject to considerable risk and market volatility.
- Withdrawal representations – that provided consumers an impression that it would be easy to withdraw funds on short notice, but the liquidity of the fund assets don’t support such a claim.
The corporate regulator’s deputy chair, Karen Chester, said that following a review, ASIC had “directly raised concerns with seven responsible entities (REs) about their advertising and disclosure in relation to 13 investment funds”.
While not naming those funds, those seven REs collectively have “approximately $2.5 billion under management”, Ms Chester flagged.
She acknowledged that “most consumers understand that investing in financial products involves some risk”.
“Today with financial risks both greater and more volatile, REs have more than ever a real-time responsibility to ensure their advertising and disclosure is ‘true to label’. Put simply, their advertising needs to accurately represent the actual features of their investment products and through economic cycles,” the deputy chair explained.
According to ASIC, “current market uncertainty and volatility brings a heightened imperative for REs to ensure consumers are not misled or misinformed”.
This is critical when it comes to the investment product’s risk profile, returns and the fund’s liquidity, Ms Chester noted.
While it is now widely acknowledged that disclosure alone is not enough to protect consumer interests, the ASIC representative said “balanced and accurate product information, especially about associated risks, remains fundamental for consumers to have at least a shot at understanding what they are getting into”.
According to ASIC, all seven entities have now taken corrective action.
The ASIC statement comes just over a month after ASIC delivered two pointed and out-of-the-ordinary warnings to Australian consumers.
The first, directed to retail investors, argued they are playing a “particularly dangerous” game by trying to time the market during the COVID-19 downturn.
The second urged consumer caution around investment product advertising it deemed was not “true to label”, condemning advertising that compared fixed-term investment products to bank term deposits.
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