ASIC warns funds of advertising crackdown

Following surveillance across funds during the coronavirus pandemic, ASIC said it was concerned to find some funds were providing “inadequate” information or were not accurately and clearly presenting features of investment products. 

Three examples were given by the watchdog where it said it was seriously concerned: first, there were unbalanced comparisons focusing on one aspect of a fund such as higher returns without providing a fair and balanced indication of differences and risks. 

Second, ASIC said it had been troubled by safety and stability representations which promoted funds as having little or no risk of capital loss, despite the fund’s underlying assets being subject to considerable risk and market volatility. 

Further, funds were said to have withdrawal representations giving the impression that it is easy to withdraw funds on short notice despite the liquidity of fund assets not supporting the claim. 

According to ASIC deputy chair Karen Chester, the regulator had raised concerns with seven unnamed responsible entities following the review about their advertising and disclosure around 13 investment funds, collectively holding $2.5 billion under management. 

All seven of the responsible entities were said to take corrective action, which entailed ceasing advertising of the funds and reviewing their content, halting issuing of interests until ASIC’s concerns were addressed and providing more balanced and prominent disclosure of risk and disclaimers. 

The entities also had to clarify withdrawal terms and stop comparing their funds to other lower-risk products on webpages. 

Ms Chester said most consumers understand that investing in financial products involves some risk, but with financial risks greater and more volatile, responsible entities (REs) have a greater than ever “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,” she said.

“Current market uncertainty and volatility [bring] 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.”

She added that it is widely acknowledged that disclosure is not enough to protect consumers.

“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,” Ms Chester said.

ASIC indicated it will continue to monitor the advertising and disclosure by managed funds during COVID-19 – adding it is aware that a number of funds are promoting, implicitly or blatantly, their products as “high yield or low risk” when it is not the case. 

The regulator has said it will consider enforcement action where inappropriate, false or misleading statements could end in significant financial harm to investors.

ASIC also recently warned responsible entities about ensuring that products are true to label and their marketing and website information did not make inappropriate comparisons between managed funds and term deposits.