ASIC Deputy Chair Karen Chester

Fund managers have been chastised by the corporate regulator for not doing enough to ensure their products are true to label, with a recent surveillance revealing that product names often don’t align with underlying assets.

ASIC recently undertook a “targeted surveillance” of 37 managed funds operated by 20 responsible entities with around $21 billion in funds under management following existing concerns with product labelling.

Those concerns prompted ASIC to warn consumers in May that investment advertising is not always true to label.

The 37 funds ASIC surveyed were distilled from an earlier assessment of the product names and labelling practices of more than 350 funds in the cash, fixed-income, mortgage and property sectors.

According to ASIC deputy chair, Karen Chester, there are two “significant” concerns; confusing and inappropriate product labels across ‘cash’ funds and redemption features that don’t actually match the underlying liquidity of the fund.

“Managed investment products are not prudentially regulated or government-guaranteed, so it is paramount that consumers are not misled about the level of risk associated with a particular product,” Chester said in an ASIC statement.

Chester added that being true to label was not a “nice to have”, but a “must have” for fund managers. “Inappropriate labelling of a fund can mislead investors into believing that the fund is much safer or more liquid than it actually is,” she added.

Following the review, ASIC sought corrective action from 13 responsible entities where major corrections were required.

Of those 13, seven made name changes to the fund, one changed asset allocation to better reflect the name, three “committed to review the fund” and one wound up the fund, ASIC stated.

“ASIC will continue to monitor the outcomes and consider appropriate regulatory action, including enforcement action where necessary,” the regulator added.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at [email protected]
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