‘Capital protected’ products – know the underlying risks

ASIC has released a health check of the Australian market for unlisted retail structured products promoted as having capital protection or a capital guarantee.

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Key points:

  • Capital protection or capital guarantee products are complex
  • Complex products can be difficult for investors to understand
  • Those selling complex products need to ensure marketing and advice directed at retail investors are accurate


Report 340 ‘Capital protected’ and ‘capital guaranteed’ retail structured products (REP 340) found retail investors often have a poor understanding of these complex investments.

REP 340 highlights the way that some of these products are labelled, with confusing or potentially misleading messages about the level of risk investors are exposed to.

Despite being labelled or described with terms such as ‘capital protected’ and ‘conditional capital protected’, some products have knock-out clauses and performance hurdles that may lead to investor losses. The report highlights concerns around:

  • the accuracy and balance of advertising for these products
  • the labelling and description of reverse convertible products as offering ‘conditional capital protection’ or ‘conditional protection’. The value of these investments is usually linked to the worst performing reference share, meaning investors could lose some or all of their money, and
  • certain ‘internally geared’ structured products that are described as entailing a compulsory capital protected loan, where all of the investor’s outlay is at risk of loss if reference assets don’t perform. Where the investment exposure is ‘notional’, there may also be risks for investors who claim tax deductions on their payments.

‘Given the attraction of investments that offer to protect or guarantee investors’ capital while simultaneously offering yield there is a risk that they may be mis-sold,’ ASIC Commissioner Peter Kell said.

‘ASIC will be focusing on the use of terms such as ‘protected’ that create a perception of safety where this is actually inconsistent with the underlying risks of some of these products.

‘We are particularly concerned about potentially misleading or unhelpful claims of “conditional protection”. Similar concerns have been raised by overseas regulators.

‘Such claims can have a powerful influence on the decision of investors, and we expect product issuers and financial advisers to ensure claims are consistent with the features of these investments, so investors can make informed decisions.

‘ASIC wants to continue working with financial services firms to make sure that investors are properly informed about these products and can make the best possible decision.

‘Where advertising is misleading as to a product’s nature or features, or the advice provided to consumers does not appropriately outline the risks, we will take action.’


There were approximately 32,000 retail investors in ‘capital protected’ or ‘capital guaranteed’ structured products in Australia in 2012 (source: Investment Trends). Sales of these products last year, excluding protected loans and capital-at-risk products, was estimated at $533 million (source: www.StructuredRetailProducts.com).

Investors who are thinking about investing in capital guaranteed or capital protected products should take steps to understand the nature and risks of these complex investments. If they don’t understand how the investment and capital protection is structured and how promised returns are achieved, they should not invest in it.

Guidance is available on ASIC’s MoneySmart website.


REP 340

Report 341 Retail investor research into structured ‘capital protected’ and ‘capital guaranteed’ investments (REP 341)