PFA warns that regulation could hurt retail investors
The Treasury’s proposal to increase regulation for unlisted property products could lead to fewer products being available to retail investors, the Property Funds Association (PFA) has warned.
The Association, which is the peak industry body for the $125 billion Australian unlisted wholesale and retail funds sector, said that the legislation, which could be enacted this year, would damage both retail investors and the sector as a whole.
“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.”
Increased compliance, uncertainty and costs could make it harder for boutique and mid-market fund providers, potentially leading to more deciding to only sell wholesale.
The PFA pointed to the proposed need for product issuers to identify the ‘appropriate target market’ for their products as an example of a potential stumbling block for product providers, saying that it shifted more risk to them.
“Legislating this requirement places more risk on the issuer and arguably shifts responsibility from the financial adviser to the product issuer,” PFA chief executive, Paul Healy, said.
“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.”
Healy said that while investors must be protected, this must not be at the cost of product innovation, much of which comes via boutique providers. This was particularly important in the current period of demand from retail investors for unlisted property vehicles.
He also believed that the Australian Securities and Investments Commission (ASIC) already had appropriate tools to protect unlisted property investors.
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