ASIC attacks term deposit scams

Australia’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), is warning investors to be wary of products advertised as term deposit alternatives, which in fact offer riskier investment options.

Moneymag.com.au says these products “lack oversight, are often less capitalised and may include unlisted and illiquid assets”.

The warning is timely as older Australians, in particular, seek higher-earning alternatives to low interest bank accounts for their cash reserves – reserves that are earning less than 2 per cent after the Reserve Bank cut official interest rates to .25 per cent.

Savings.com.au explains that term deposits can be issued only by authorised deposit-taking institutions, are protected by the government’s Financial Claims Scheme, which guarantees $250,000 in the event of a bank’s collapse, and are supervised by the Australian Prudential Regulation Authority (APRA).

“If an investment product offers higher returns than a term deposit, it is more likely than not to be higher risk,” says ASIC deputy chair Karen Chester. “In the current uncertain and volatile markets, higher risk investment products are, more than ever, not for everyone.

“Products spruiking even a two or three percentage point higher return than a term deposit represents significantly higher risk. We are also seeing products offering only marginally higher returns with much higher risk profiles.

“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 cycles.”

In April, The Guardian reported that ASIC had begun legal action against Mayfair 101, the firm behind the ambitious redevelopment of Queensland’s Dunk Island, claiming its advertisements were misleading and deceptive.

“The regulator’s case centres on advertisements and websites run by Mayfair that compare its products to term deposits, including claims it can provide favourable rates of return.”

ASIC raised concerns that a website run by Mayfair, termdepositguide.com, made claims its products were similar to term deposits.

ASIC objected to the use of phrases including “term deposit alternative”, “certainty” and “confidence” in online promotions for the products.

Mayfair 101 group said it would “contest ASIC’s claims in full”. It suspended withdrawals on the products.

ASIC released a statement warning consumers about investment advertising that compared fixed-term investment products to bank term deposits “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 the Australian Prudential Regulation Authority (APRA). Some are also backed by concentrated portfolios of higher risk unlisted and illiquid assets.

“ASIC recognises that many consumers may be seeking higher and regular returns on their investments during this time because of low interest rates and market volatility. But there are significant differences between bank term deposits that are relatively low-risk products and fixed-term funds and debentures offering regular, fixed distributions that are higher risk investment products.”

ASIC ramped up its consumer awareness campaign having already disseminated published research aimed at discouraging investors from trying to capitalise on share-market moves.

The regulator is concerned about advertising seeking conservative investors looking for a reliable income stream.

The Australian Financial Review said ASIC’s surveillance focused on fixed-income products “pitched at both mum and dad investors and investors that qualify as wholesale by virtue of their net wealth, income, or the size of their investment”.

Have you been tempted by a product that promises higher interest rates than the best bank term deposit rates?

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Written by Will Brodie

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