For the second time in two days, the corporate watchdog has delivered a warning to consumers – this time about investment product advertising that isn’t “true to label”.
The Australian Securities and Investments Commission (ASIC) is now warning consumers about investment advertising that compares fixed-term investment products to bank term deposits.
In a statement, the regulator said it has seen a surge in such market over recent months – and is cautioning consumers to “take care making investment decisions based on such advertising”.
According to ASIC, fixed-income products are being advertised as term deposit “alternatives” or “substitutes”, and the practice is leading consumers to invest significant sums of money.
Many consumers are currently seeking higher and more regular returns on their investments due to low interest rates and market volatility, but ASIC warned that there are significant differences between bank term deposits, which it considers “relatively low-risk”, and fixed-term funds and debentures offering regular fixed distributions “that are higher-risk investment products”.
The regulator considers bank term deposits relatively low-risk because they are protected by the government’s Financial Claims Scheme, and because banks are actively supervised and monitored by the Australian Prudential Regulation Authority (APRA) to ensure they honour their banking commitments.
Fixed-term investment products are riskier “because they may be issued by entities that are not well capitalised, not protected by the government’s Financial Claims Scheme and not supervised by APRA”, ASIC outlined.
Some are reportedly even backed by concentrated portfolios of higher-risk unlisted and illiquid assets.
ASIC deputy chair Karen Chester has weighed in, noting that “if an investment product offers higher returns than a term deposit, it is more likely than not to be higher-risk”.
“In the current uncertain and volatile markets, higher-risk investment products are, more than ever, not for everyone – especially for smaller investors, be they retail or wholesale, when they are not investing as part of a diversified portfolio,” she said.
She warned consumers to “be wary of investments that claim to be ‘like’ a ‘term deposit’.”
Products spruiking even a 2 or 3 percentage point higher return than a term deposit represent significantly higher risk, according to the deputy chair, who also observed products in the market offering only marginally higher returns with much higher-risk profiles.
“Investment products marketed to consumers should be true to label,” Ms Chester continued.
“When choosing an investment product, carefully assess if the product is appropriate for your circumstances, particularly when comparing relatively low-risk products such as bank term deposits with other higher-return and thus higher-risk investments.”
If in doubt, Ms Chester urged individuals to seek independent financial advice.
“Products should not be marketed as having features like low risk of loss, regular returns or easy access to withdrawals unless the product issuer has reasonable grounds to believe they have and will continue to have such features through the economic cycle,” she outlined.
“Product issuers need to ensure broad statements in their product marketing reconcile with the fine print in any offer document.”
The new warning comes just a day after ASIC said retail investors are playing a “particularly dangerous” game in trying to time the sharemarket amid current volatility.
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