ASIC has made an interim stop order preventing Australasian Property Investments Limited (APIL) from offering or distributing the APIL Essential Retail Income Fund (the Fund) to retail investors because of a non-compliant target market determination (TMD).
The interim order stops APIL from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in the Fund. The order is valid for 21 days unless revoked earlier.
ASIC made the interim stop order to protect retail investors from potentially investing in a fund that may not be suitable for their financial objectives, situation or needs.
The Fund is invested in two shopping centres and is currently raising money to purchase a third shopping centre. The Fund borrows money to support its investment activities and investors in the Fund cannot withdraw their money until April 2029.
In its product disclosure statement for the Fund, APIL has disclosed that money invested in the Fund is not guaranteed and the monthly income distribution is based on assumptions and the actual results may be different to the forecast result.
Given these features and risks, ASIC considers that the Fund is not suited to the target market as defined in the TMD by APIL. The target market for the Fund includes investors:
- looking to invest in commercial properties with the prospect of capital growth and a secure income stream;
- who are ‘cash rich’ entities or retirees looking for a long-term capital investment along with a monthly return;
- with a ‘buy and hold’ strategy and do not require immediate access to capital; and
- with a need for preservation of capital that accrues capital gains/losses over the lifespan of the investment.
ASIC also found that APIL did not meet the information requirements for the TMD. APIL also did not meet the appropriateness requirements under the design and distribution obligations (DDO) because the distribution condition was inadequate – APIL’s distribution condition relied solely on investors’ self-certification that they are in the target market.
ASIC expects APIL to consider the concerns raised about the TMD and take immediate steps to ensure compliance. If ASIC’s concerns are not addressed in a timely manner, a final stop order will be placed on the Fund. APIL will have an opportunity to make submissions to ASIC before the final stop order is made.
ASIC reminds financial product issuers that under DDO, they must define target markets for their products appropriately, having regard to the risks and features of their products. Issuers also need to consider how their product will reach the target market, and have appropriate distribution conditions in place to ensure the product is directed towards them.
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. An important requirement under DDO, a TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.
ASIC recently issued its first DDO stop orders to prevent the offer of financial products to consumers (22-194MR). ASIC also placed interim stop orders on the offer and distribution of Australian Residential Property Fund and Private Property Trust No. 20 in response to deficiencies in their TMDs (22-252MR).