The fast adoption of hybrid securities by self-managed superannuation funds (SMSFs) has attracted the Australian Securities and Investments Commission’s ire, with the regulator promising to crack down on the mis-selling of these investments.
There were approximately 75,000 investors in hybrid securities last year, two thirds of which were SMSFs, according to research by Investment Trends.
A further 11,000 investors indicated that they intended to invest in hybrids over the next 12 months, Investment Trends’ Investor Product Needs Report found.
In a statement, ASIC said that the banks and corporations which had issued over $18 billion of hybrids since November 2011 had improved their disclosure of the risks, however, a lot of work still needed to be done to ensure these “complex financial products are not mis-sold to investors”.
The regulator will be targeting marketers, including brokers and financial advisers, who do not appropriately represent hybrids to clients, and who compare hybrids to different, less risky products such as cover bonds or senior debt.
“Spruiking the potential higher returns of hybrids and the brand name or reputation of the issuer without balancing that with the risks of the product can also cause investors to be misled,” ASIC commissioner John Price said in a statement.
“We have responded to the increased issuance and popularity of hybrids by working with issuers and their advisers, as gatekeepers, to help improve prospectus disclosure and ensure selling messages are not misleading.”
The Investment Trends survey found that 64 per cent of respondents who invested in hybrid securities were self-directed, while the remaining 36 per cent did so upon advice from their full-service brokers or private client advisers. The number-one reason investors said they invested in hybrids was for their high yield characteristics. A further 53 per cent said they selected hybrids based on the brand and reputation of issuers, and 43 per cent said they wanted a good balance of risk and return.
Investment Trends senior analyst Recep Peker said investors had become increasingly focused on building a sustainable income stream while their appetites for capital growth had waned.
“An increasing number of investors has turned to hybrid securities to achieve this, with the number of hybrid securities investors increasing strongly to 75,000 at the end of 2012, up from 61,500 in December 2011 and 45,000 in December 2010,” he said.
