Media Release - 22 March 2000

NEW MANAGED INVESTMENTS ACT FAILS INVESTORS

It is indisputable that divided responsibility is no responsibility.  In the new Managed Investments Act (MIA) the roles of Manager and Trustee appear to have become clouded with consequent "divided responsibility".  In trying better to sheet home responsibility, the MIA has replaced the terms Manager and trustee respectively with Responsible Entity and Custodian.  However, in eliminating the requirement for an independent Trustee (or mandatory external Custodian, as was proposed in the original Managed Investments Bill, 1997, in specified circumstances) the MIA appears to have thrown the baby out with the bath water.

Most fund managers have elected to become Custodians of the assets they manage, rather than engage an external Custodian, but this combination of roles has brought no cost savings to investors, nor any perceivable benefits in practice.  Now who does the investor sue if the manager goes broke and in its death throes absconds with the investors' assets?  It is a historical fact that many Trustee Companies proved almost useless at protecting the assets of investors from incompetent and dishonest managers of pooled investment funds, and the new act seems to have simply given up on trying to improve that situation.

Containing approximately seventy sections dealing with the registration of managed investment schemes and accompanied by extensive ASIC Policy Statements, one could be forgiven for assuming investors would be protected from every conceivable form of exploitation by fund managers.  In fact, the fund managers are already driving buses through the holes in it, especially in the transition phase for existing funds.

One simple example:  As the act is constructed, the independent Custodian is powerless to refuse to hand over the assets 'on request' to whoever the Responsible Entity nominates, even if the Responsible Entity is suspected of being dishonest, or is thought to be going broke?

For greater comment please see the background paper

For more information, contacted the President.

National President
22March, 2000