Property trusts targeting SMSFs hit with interim stop orders

The interim stop orders were placed due to deficient target market determinations.

The interim orders stop MPG from issuing interests in, giving a product disclosure statement for, or providing general advice to retail clients recommending investments in the Trusts. The order is valid for 21 days unless revoked earlier.

ASIC said it made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs.

MPG Funds Management describes its target investors for the MPG Essential Services Property Trust as “investors seeking regular income with taxation benefits and the potential for capital growth such as self-managed super funds, private investors and retirees”.

The website describes the MPG Bulky Goods Retail Trust as being suited to all investors with a minimum investment of $10,000.

ASIC stated that the two trusts are solely invested in a concentrated portfolio of commercial properties.

“They have an investment term during which investors have no ongoing withdrawal rights and employ leverage, which increases the level of risk for investors,” said the corporate regulator.

“ASIC is concerned that MPG has not appropriately considered these features and risks in determining the target markets for the trusts because the TMDs include investors with a tolerance for an undefined ‘medium risk’; wanting stable and regular income distributions; and needing liquidity or needing to make withdrawals during the investment term for the trusts.”

ASIC said it also considered that the distribution conditions in the TMDs did not meet the appropriateness requirement under the design and distribution obligations (DDO) because these conditions were not specific enough to make it likely for the trusts to reach consumers in the target market.

“ASIC also considered that the TMDs did not adequately specify:

• The information that distributors must report for MPG to promptly identify the occurrence of a review trigger (or any event/ circumstance) that would suggest that the TMDs were no longer appropriate;
• The period for reporting this information to MPG; and
• The review triggers for the TMDs.”

The corporate regulator said it expects MPG to consider the concerns raised regarding the TMDs and take immediate steps to ensure compliance.

“ASIC will consider making a final order if its concerns are not addressed in a timely manner. MPG will have an opportunity to make submissions before a decision is made about a final stop order,” it stated.

Including these latest interim stop orders, ASIC has now issued 15 DDO stop orders to date.

“Of the 15 DDO interim stop orders issued by ASIC to date, nine interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns or where the products were withdrawn. Six remain in place,” it said.

ASIC reminded financial product issuers that under DDO, they must define target markets for their products appropriately, having regard to the risks and features of their products.

“Issuers also need to consider how their product will reach the target market and have appropriate distribution conditions in place to ensure the product is directed towards the target market,” it warned.

“ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.”