In its submission to ASIC’s consultation on the dynamics between public and private markets, the FSC said that while demand for access to high-return private assets is rising – from both fund issuers and retail investors – regulators must distinguish between advised and unadvised investors in their policy responses.
“Advised retail investors benefit from the expertise of financial advisers, who in turn often leverage sophisticated research from research houses,” the FSC said. “In contrast, unadvised retail investors may be unsophisticated investors who do not fully understand their underlying investments. This applies both to public and private investments.”
The submission noted that advised clients also have the added protection of complaint avenues and potential compensation through the Australian Financial Complaints Authority and Compensation Scheme of Last Resort in cases of misconduct.
Unadvised investors, however, lack these safeguards and may struggle to assess the risks of illiquid or complex private assets.
To address this, the FSC recommended that any new regulatory protections be specifically targeted to benefit unadvised retail investors.
Notably, recommendation 1.2 of the submission calls for new protections to be “targeted towards protecting unadvised retail investors”, while reaffirming that institutional and advised participants already operate within a robust framework of professional obligations and legal recourse.
Namely, the council argued that current regulatory obligations – such as the design and distribution obligations, fiduciary duties and existing disclosure rules – already provide a strong foundation for protecting advised investors when implemented correctly.
The FSC warned against “one-size-fits-all” regulation that could unnecessarily hamper private market performance, instead urging ASIC to focus on targeted measures, improved transparency and stronger governance standards that protect vulnerable investors without stifling innovation and capital flow.
“Retail investors should be protected through targeted changes or enhancements to existing regulations around governance and product disclosure, rather than completely new regulations,” the FSC said.
“This will enable greater retail investor participation in the market. Meanwhile funds which target wholesale and institutional investors should retain their current level of flexibility.”
It added that superannuation funds – where most retail exposure to private markets currently occurs – should not be subject to retail investor-style regulation due to their institutional governance capabilities and existing APRA oversight.
Where’s ASFA’s submission to DBFO 1.5?
The Voice of Super.
Another self serving statement from the FSC – the message – all other products except for those providers who fund this lobby group are too risky. Another FUM retention strategy just like the industry super funds ISA lobby group.