7. Collective investments

7.1 Product rationalisation

The current procedures for rationalising the market by transferring investors and policy holders from outdated financial products and funds to newer, more efficient products are complicated, expensive and protracted, and are consequently rarely used.

There are currently around 7,600 funds or other products in Australia with total investment of around $691 billion – the comparable figures in the United States are $10,809 billion invested in around 8,000 funds/products. The large number of products in Australia include many which are out of date in terms of the product offering and the technology platform supporting the product. This introduces significant operational risks within the market. Such products tend to be run using obsolete technology which is often inaccurate and badly supported by providers. Consumers suffer because of frequent pricing errors and high management costs.

Consultation Issue Comments are sought on the possible introduction of a simplified mechanism to allow financial product issuers (specifically of superannuation, managed investments and life insurance investment products) to be able to restructure and rationalise outdated products.

 

7.2 Investor Directed Portfolio Services

The current arrangements for exempting Investor Directed Portfolio Services (IDPS) from a number of provisions in the Corporations Act are complex and dated.

IDPSs are arrangements for the custody of investments including consolidated reporting, commonly referred to as ‘wrap accounts’. ASIC currently treats these products as types of managed investments and therefore regulates them under Chapter 5C of the Corporations Act. They are also subject to various ASIC class orders that exempt them from a number of provisions of the Corporations Act. The current class order arrangements are complex and lack transparency. They date to the period before the current financial services regulatory regime and it may therefore be questioned whether they are still necessary.

Consultation Issue Comments are sought on removing the ASIC class orders that currently create a special regulatory regime for Investor Directed Portfolio Services products that sits outside the Corporations Act framework. In place of the class orders, these products could be dealt with as a financial service under the existing provisions of Chapter 7 of the Corporations Act.

 

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