Increased regulation of unlisted funds will impact investors: Paul Healy

Increased regulation of unlisted funds will impact investors: Paul Healy
Increased regulation of unlisted funds will impact investors: Paul Healy

GUEST OBSERVER

A proposal to increase regulation for unlisted property products could result in fewer products being available to retail investors.

Treasury’s proposed product design and distribution obligations combined with new product intervention powers would lead to consolidation among retail providers of unlisted property funds, and fewer choices for retail investors. 

An increase in compliance, uncertainty and costs would make it harder for boutique and mid-market fund providers. Retail investors will likely miss out as more issuers decide to go wholesale only. 

Many in the small-to-mid-market will find the retail compliance demands too onerous and too costly. 

This could lead to consolidation in the retail market with fewer products available, which won’t benefit the average investor.

The proposed legislation, which could be enacted during 2018, shifts more risk to product providers. Key stumbling blocks include the need for product issuers to identify the ‘appropriate target market’ for their products. 

Legislating this requirement places more risk on the issuer and arguably shifts responsibility from the financial adviser to the product issuer. 

Unlisted property funds will need to spend more on compliance, legal advice, and possibly consumer testing to satisfy these requirements. Those funds which do go ahead will be under pressure to pass these increased compliance costs on to investors.

Investors must be protected but investors also benefit from product innovation, much of which comes via boutique providers. There is a balancing act between appropriate compliance measures and the freedom to bring new and innovative products to market. 

ASIC already has the tools available to protect unlisted property investors. There is strong demand among retail investors for unlisted property vehicles and we need to ensure industry can continue to bring appropriate, high performing products to this market.

Paul Healy is CEO of Property Funds Association, an industry body for the $125 billion Australian unlisted wholesale and retail property funds sector. 

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