Investment banks Credit Suisse Investments Services (Australia) Limited and UBS AG (Australia branch) have changed their promotional materials for complex financial products following ob体育 concerns that they were potentially misleading.
Boutique structured products investment manager Instreet Investment has also made changes to its materials promoting a product issued by UBS following similar ob体育 concerns.
The actions come after ob体育 earlier this year raised issues with Commonwealth Bank and HSBC Bank ads for certain retail structured products (refer: 13-176MR).
鈥楾oday鈥檚 outcome should provide further encouragement for industry to take a strong role in ensuring ads and product labeling help consumers make confident and informed decisions,鈥� ob体育 Deputy Chairman Peter Kell said.
ob体育 was concerned that Credit Suisse鈥檚 and UBS鈥� use of the terms 鈥榗ontingent capital protection鈥� and 鈥榗onditional protection鈥�, respectively, in their promotional material for 鈥榗apital at risk鈥� structured products, was inappropriate.
The materials could be downloaded from the companies鈥� websites, and were also provided to consumers by third party financial advisers. Following ob体育鈥檚 concerns, the banks dropped the terms.
鈥榃ords like "protection" imply a level of safety that is inconsistent with the nature of these structured products,鈥� Mr Kell said. Investors generally bear the downside risk of the product鈥檚 worst performing reference share, when any of these reference shares falls below a "knock in" price. The yield paid to investors to take on this risk may seem attractive, but as pointed out by ob体育 Report 340 released earlier this year [Report 340 鈥楥apital protected鈥� and 鈥榗apital guaranteed鈥� retail structured products (REP 340)], some recent "reverse convertibles" had lost up to 70% of their original value by maturity.
鈥業nvestors in these products have limited or no exposure to the positive performance of shares when prices rise, but downside risk in a falling market, often concentrated to the product鈥檚 worst performing reference share. In this context, any product labels or descriptions that imply investors鈥� money in such products is "protected" or "safe" are highly problematic,鈥� Mr Kell said.
Instreet Investment, which distributes a structured product issued by UBS, removed materials from its website that claimed the investment offered 鈥榗onditional protection鈥�, and stopped distributing the materials through financial advisers.
ob体育 acknowledges the cooperative approach taken by Credit Suisse, UBS and Instreet Investment in these matters and their prompt actions to rectify the materials.
Background
ob体育鈥檚 crackdown on firms selling complex products promoted as having capital protection or a capital guarantee, or as offering 鈥榗ontingent鈥� or 鈥榗onditional鈥� forms of protection, follows a review into the sector. It found there was a need to ensure that marketing and advice directed at retail investors is more appropriate and accurate, especially where an investor鈥檚 capital was at risk (refer: 13-093MR).