In the current period of low interest rates and market volatility created by COVID-19, consumers may be seeking higher, regular returns on their investments.

It’s important you take the time to understand the nature, risk profile and withdrawal conditions of an investment product before committing to it.

Most consumers understand that investing in financial products involves some risk, but many might not know that a product spruiking just a two or three percentage point higher return than a bank term deposit, for example, represents a significantly higher investment risk that could lead to capital losses.

Fixed-income products

In recent months, ASIC has seen some concerning marketing activities that compare fixed income and mortgage investment products to bank term deposits. These investment products are riskier than 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 backed by concentrated portfolios of higher-risk unlisted and illiquid assets.

We also recently carried out a surveillance of advertising material, website disclosure and product disclosure statements from managed funds during the COVID-19 pandemic. We were concerned to find some funds were providing inadequate information or were not accurately and clearly presenting key features of their investment products.

Misleading advertising

Companies should not produce misleading advertising, but the unfortunate fact is that it exists. ASIC recommends that you read and double-check all relevant information before committing to an investment product. The advertising of some investment products, such as fixed-income products and managed investment schemes, could be misleading by:

• comparing fixed-income products to bank term deposits, even though fixed-income products are riskier than bank term deposits.
• focusing on one aspect of the fund without providing a fair and balanced indication of key differences and risks.
• promoting the funds as having little or no risk of capital loss, despite the fund’s underlying assets being subject to considerable risk and market volatility.
• giving the impression that it is easy to withdraw funds on short notice, where the liquidity of the fund’s assets does not support this claim.When choosing an investment product, carefully assess if the product is appropriate for your circumstances, particularly when comparing relatively low-risk products such as bank term deposits with other higher return – and thus, higher risk – investments.

Seek independent financial advice

If you are unsure about whether an investment product is the right one for you, seek independent financial advice. ASIC’s Moneysmart website also has independent information about investment choices and working with a financial adviser.

Further information:

• Investment advertising is not always ‘true to label’
• Investment funds told to correct advertising and disclosure