ASIC has made an interim stop order preventing Australian Unity Funds Management Ltd (Australian Unity) from issuing or distributing interests in the Australian Unity Select Income Fund (Fund) to retail clients.
ASIC’s action was in response to concerns that Australian Unity failed to take reasonable steps likely to result in distribution conduct being consistent with its target market determination (TMD).
ASIC’s concerns related to Australian Unity’s reliance on a retail client questionnaire with significant flaws as a key step for compliance with its obligations. When applying for interests in the Fund, retail clients who have not received financial advice must respond to Australian Unity’s questionnaire.
The questions and response options were based on and relied predominantly on complex consumer attributes set out in the Fund’s TMD. The TMD is not intended to be a consumer-facing document and there was a high risk that retail clients would not understand the questionnaire. This may lead to inaccurate responses and distribution of interests in the Fund by Australian Unity to retail clients outside the target market.
ASIC was also concerned the questionnaire’s effectiveness was undermined by:
- giving prompts disclosing which response option places the retail client outside the target market; and
- having follow up telephone communications to provide retail clients with a further opportunity to amend their response to fit within the target market.
The interim order stops Australian Unity and other distributors from dealing in interests in giving a product disclosure statement for or providing general advice to retail clients recommending an investment in the Fund. The order is valid for 21 days unless revoked earlier.
Background
The Fund is a contributory mortgage fund that provides retail clients the opportunity to select and invest in a range of syndicate-funds which each provide exposure to a specific registered first mortgage loan for property development purposes.
Under the design and distribution obligations (DDO), an issuer and distributors of a financial product must take reasonable steps that will, or are reasonably likely to, result in distribution conduct relating to retail clients being consistent with the TMD for the product.
To date, ASIC has issued 87 interim stop orders and one final stop order under DDO, including the order for Australian Unity.
Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.
This action is ASIC’s third use of its stop order powers in response to a contravention of the reasonable steps obligations regarding a financial product since DDO took effect in October 2021.
