In the past 18 months, many companies within Australia's financial services sector have fallen by the wayside over what many have immediately deemed to be mismanagement or the greed of financial advisers.
Yet as more information is revealed in a number of the country's most recent and well-publicised collapses, the failure of product has risen to the surface as one of the main, if not the main, causes of concern.
In the case of Timbercorp and Great Southern, it has been alleged failure to include critical financial information in company product disclosure statements (PDS) was at the core of the company's concerns.
Collapsed hedge fund manager Trio Capital, formerly Astarra Asset Management, has also been accused of failing to provide enough information, and in some cases many believe it did not actually produce a legal PDS.
For the average investor, a PDS is as close to what they believe a product bible is. In their eyes, it is a viable, legal document that gives them a greater understanding of a product.
However, in light of the corporate dramas Australia's financial services sector has experienced and countless millions of investor money lost, ASIC has released a report of the findings from a review of select PDSs.
The regulator's report focused on PDSs for capital-protected products, structured products or derivative products targeting retail investors.
The report was the result of a program the regulator embarked on in January last year. As part of the review, ASIC reviewed 64 PDSs for adequacy of disclosure.
"ASIC focused on capital-protected products as investors may be attracted to these investments due to a perception of capital safety without fully comprehending the inherent risks," ASIC said in a statement.
"The report also reviews structured and derivative products marketed to retail investors, given increased retail participation in these complex products where associated risks and costs may not be anticipated or understood."
The key findings of the report included:
- issuers need to clearly explain counterparty risk, and include supporting financial information,
- issuers need to ensure retail investors can assess the issuer's financial ability to meet its counterparty obligations of capital protected products,
- issuers need to ensure disclosure is sufficient so that investors can assess the likelihood of early termination or any other significant limitations of these products, and
- issuers need to provide better disclosure of break costs that may apply where an investor seeks to terminate or redeem a product before its maturity date.
Do you agree with ASIC's assessment of its review? Do you believe there are other sections of the market that deserve greater scrutiny?
