Australian Securities & Investments Commission (ASIC)
Tuesday 22 August 2006 06 – The Australian Securities and Investments Commission (ASIC) today issued a strong warning to consumers about the risks involved in many fixed interest investments that are widely advertised in the press, radio and television.
‘Risky fixed interest investments are aggressively advertised to consumers. ASIC regularly takes action if companies fail to disclose important information or make claims that are misleading and deceptive.
But otherwise, these investments are regulated in many ways just like shares: you make your choice and take your chances’, ASIC’s Executive Director, Consumer Protection, Mr Greg Tanzer said. ‘If you see an investment that offers an attractive interest rate, don’t invest a cent until you’ve checked it against our 3-way test’, Mr Tanzer urged.
Test 1: who are you giving your money to? Banks, building societies, credit unions, super funds and life insurance companies are the only institutions specially regulated to make sure that, under all reasonable circumstances, they can meet their financial promises. Otherwise, you’re taking an extra risk, like buying shares. And, if property is involved, your investments is not automatically ‘as safe as houses’. You alone have to judge the risk that the company you lend to may fail or default.
Test 2: is the interest rate higher than 8.5% per year? If your expected return seems high, it adds extra risk. Your proposed investment may be more risky than a typical fixed interest investment. You may risk losing a significant amount of what you’re planning to invest, so it’s vital to check if you’ve got all the facts and if you can handle those risks. These must be spelled out in the product disclosure statement or the prospectus the fund must give you.
Test 3: do you plan to put all your eggs in this basket? Placing all your funds in one investment is extremely risky unless you’re putting the money into a deposit with a bank, building society, credit union, super fund or life insurance company.
If things go wrong, your entire nest egg could be wiped out. Unless you can afford to lose all your money, spread your risk by spreading your investments. More help about fixed interest investments is available from ASIC’s dedicated consumer website FIDO at www.fido.gov.au.
For further information contact: Mr Greg Tanzer Executive Director, Consumer Protection Telephone: 07 3867 4704 Mobile: 0411 549 144 Danielle Huck ASIC Media Unit Telephone: 03 9280 3407 Mobile: 0417 540 769