Investors warned over ‘dodgy’ advertising of fixed-term investment products

Watchdog warning consumers to be wary of investments that claim to be similar to term deposits but are much riskier.

Higher risk investment products are, more than ever, not for everyone.

The corporate regulator has raised the alarm over dodgy advertising of fixed-term investment products, warning consumers to be wary of investments that claim to be similar to term deposits but which are, in reality, much higher up the risk curve.

The warning from ASIC comes after the regulator last month took legal action against investment house Mayfair 101, alleging that ads for its debenture products were misleading and deceptive.

ASIC on Thursday said it was closely monitoring advertising that compares fixed-term investment products to bank term deposits, and the entities promoting such products.

“ASIC views these investment products as riskier than 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.

“Some are also backed by concentrated portfolios of higher risk unlisted and illiquid assets,” the corporate cop said.

Investment products marketed to consumers should be ‘true to label’, ASIC deputy chair Karen Chester said.

“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.”

Investments that offered higher returns than term deposits were likely to be higher risk, she warned.

“In the current uncertain and volatile markets, higher risk investment products are, more than ever, not for everyone. Especially for smaller investors, be they retail or wholesale, when they are not investing as part of a diversified portfolio.

“Be wary of investments that claim to be ‘like a term deposit’. 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,” she said.

The Federal Court last month banned investment house Mayfair 101 from promoting its debenture products and prohibited it from using specific words and phrases in its advertising, including “fixed term”, “term deposit” and “bank deposit”.

But the court stopped short of banning the company from issuing new investments, instead ordering it to post lengthy notices on the Mayfair Platinum and Mayfair 101 websites that clearly state the risks for investors, including that “investing in the products offered by the Mayfair 101 Group is not the same as depositing money in a term deposit offered by a bank. Investing in Mayfair 101 Group products has a higher level of risk compared to investing in a bank term deposit”.

Mayfair caught the attention of investors last year with its redevelopment plans for Far North Queensland’s Dunk Island. Last month it froze redemptions from its M+ Fixed Income and M Core Fixed Income products, of which it has raised about $140m from investors.