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Investors cautioned over high risk schemes

By Madeleine Collins
2 minute read

Investors are paying a high cost for not reading the fine print, commentators warn.

Research houses and fund managers have urged investors to get clued up on risky loan schemes.

Many investors believe, mistakenly, that debentures and unsecured notes are similar to bank fixed term deposits but with a higher interest rate, ING-owned research house Financial Facts chief Margaret Callinan said.

"People often give little thought to the quality of the guarantee or security contained in the fine print," Callinan said.

It can be difficult to differentiate between debentures that offer value for money and those that contain unexpected risks, she admitted.

Investment commentators have come out in force after property financier Australian Capital Reserve (ACR) and parent company Estate Planning Group were handed over to administrators on Monday.

The group owes $300 million to around 7000 retiree investors in unsecured debenture notes.

ACR followed the collapse of Westpoint and Fincorp, which both issued investment notes that promised low risk and high returns.

If a fund allocates 50 per cent or more of the portfolio to construction and development loans, alarm bells should sound, Australian Unity Investments head of mortgages Roy Prasad said. 

"In the current property climate, these types of investment are at the more risky end of the spectrum," Prasad said.

ACR administrators McGrathNicol said it appears that the secured lenders to the group's 21 developments are well protected and significant proceeds will be available for unsecured noteholders.

The trustee for ACR noteholders, financial services firm Trust Company Limited, distanced itself from the group's financial problems.

Trust said its powers to receive company information are limited by an unsecured note trust deed dated seven years ago.

"Based on the information available.there was no breach of the obligations by ACR under the terms of the trust deed," it said.