Risky term deposit 'alternatives' under fire from ASIC
Investments aren't always what's advertised on the box, the Australian Securities and Investment Commission has warned investors.
The regulator has received reports of fixed-income products that are advertised as term deposit alternatives or substitutes, leading some consumers to invest under false pretences.
The regulator views these as riskier investments than true fixed income products, because they lack oversight, are often less capitalised, and may include unlisted and illiquid assets.
"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," says ASIC deputy chair Karen Chester.
Investors should query products that claim to be like a term deposit. Bank term deposits are low risk because:
- they are protected by a government guarantee which guarantees the first $250,000 invested (per depositor, per bank); and
- the ability of banks to honour their commitments to depositors is monitored by APRA.
"Products spruiking even a two or three percentage point higher return than a term deposit represent significantly higher risk. We are also seeing products offering only marginally higher returns with much higher risk profiles."
Chester underscores that products should come as advertised.
"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."