When considering purchasing any financial product, consumers will be given a Product Disclosure Statement (PDS) which outlines all the important information about the item the consumer is considering.  It is meant to serve as a comparison document, so buyers can look at different options side by side in an easy to read format.

Elements of a Product Disclosure Statement

Typically, the PDS will list the following information about the product:

• Product Features –  this will list all the details about the particulars of the financial product being purchased.
• Fees – this will outline how much the buyer will be expected to pay for the product, and all additional fees that may apply.
• Benefit/Risk statement – this will outline the overall benefits and risks of investing as it relates to the particular product being purchased.
• Commissions – any money that will paid to the broker out of the buyers returns.
• Complaint Procedures – what the buyer needs to do if there is a problem with the product or how it is administrated.
• Any other pertinent information the buyer will need to make an informed decision.

When a buyer receives a PDS, it’s important to read it carefully to make sure he or she fully understands what is being purchased.  Product Disclosure Statements are not typically used for investments that are traded on the open market, so are therefore not required to be registered with the Australian Securities and Investments Commission (ASIC.)  If a buyers product includes a managed investment which is publically traded, a copy of the PDS will be lodged with the ASIC, and will be searchable on the ASIC website.

Products Which Require a Product Disclosure Statement

In Australia, the following products require the buyer to receive a PDS before the transaction is completed:

• Managed investments, like mutual funds or investment packages.
• Superannuation products:  These are retirement accounts buyers may contribute a certain amount of money to per year.  This money is then invested into a managed fund of variable risk, depending on the buyer’s unique needs and qualifications.  Superannuation products usually include an employer contribution, and may be part of an employment benefit package.  A PDS may look slightly different for a superannuation product than for other financial products, and may include additional details about benefits, premiums and objectives.
• Retirement accounts:  Similar to superannuation products, a retirement account may be an investment fund or savings account created to help support a buyer through retirement.
• Deposit products, including low-risk, short-term, guaranteed investments.
• Derivatives: Derivatives are financial contracts based on the value or price of another item, and are used to lower the risk of losing money when the value of that item fluctuates.   Derivatives may be based upon an asset, like a residential mortgage, commodities, stocks, loans and bonds; or an index, like stock market indices, exchange rates, interest rates or the consumer price index.

Read the fine print!

The Product Disclosure Statement is the proverbial fine print. While it might seem like a hassle to read through it thoroughly, just ‘skimming’ it is most certainly not recommended. Sit down and really study it before you commit to anything, and if you don’t understand a part of it, ask!

Photo by aquarelle