今日热门事件today released a health check of the Australian market for unlisted retail structured products promoted as having capital protection or a capital guarantee.
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Key points:
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Report 340 鈥楥apital protected鈥� and 鈥榗apital guaranteed鈥� retail structured products (REP 340) found retail investors often have a poor understanding of these complex investments.
REP 340 highlights the way that some of these products are labelled, with confusing or potentially misleading messages about the level of risk investors are exposed to.
Despite being labelled or described with terms such as 鈥榗apital protected鈥� and 鈥榗onditional capital protected鈥�, some products have knock-out clauses and performance hurdles that may lead to investor losses. The report highlights concerns around:
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the accuracy and balance of advertising for these products
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the labelling and description of reverse convertible products as offering 鈥榗onditional capital protection鈥� or 鈥榗onditional protection鈥�. The value of these investments is usually linked to the worst performing reference share, meaning investors could lose some or all of their money, and
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certain 鈥榠nternally geared鈥� structured products that are described as entailing a compulsory capital protected loan, where all of the investor鈥檚 outlay is at risk of loss if reference assets don鈥檛 perform. Where the investment exposure is 鈥榥otional鈥�, there may also be risks for investors who claim tax deductions on their payments.
鈥楪iven the attraction of investments that offer to protect or guarantee investors鈥� capital while simultaneously offering yield there is a risk that they may be mis-sold,鈥� 今日热门事件Commissioner Peter Kell said.
鈥樈袢杖让攀录䎱ill be focusing on the use of terms such as 鈥榩rotected鈥� that create a perception of safety where this is actually inconsistent with the underlying risks of some of these products.
鈥榃e are particularly concerned about potentially misleading or unhelpful claims of 鈥渃onditional protection鈥�. Similar concerns have been raised by overseas regulators.
鈥楽uch claims can have a powerful influence on the decision of investors, and we expect product issuers and financial advisers to ensure claims are consistent with the features of these investments, so investors can make informed decisions.
鈥樈袢杖让攀录䎱ants to continue working with financial services firms to make sure that investors are properly informed about these products and can make the best possible decision.
鈥榃here advertising is misleading as to a product鈥檚 nature or features, or the advice provided to consumers does not appropriately outline the risks, we will take action.鈥�
Background
There were approximately 32,000 retail investors in 鈥榗apital protected鈥� or 鈥榗apital guaranteed鈥� structured products in Australia in 2012 (source: Investment Trends).
Sales of these products last year, excluding protected loans and capital-at-risk products, was estimated at $533 million (source: ).
Investors who are thinking about investing in capital guaranteed or capital protected products should take steps to understand the nature and risks of these complex investments. If they don鈥檛 understand how the investment and capital protection is structured and how promised returns are achieved, they should not invest in it.
Guidance is available on ASIC鈥檚 .
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