Investors with cash accounts through platforms, wraps and other pooled vehicles are disadvantaged under the government's planned guarantee of bank deposits up to $250,000, the Financial Services Council (FSC) said.
FSC policy director Martin Codina said the aggregated nature of platform investments meant custodians were making single investments of tens of millions of dollars, and the government treated the pooled sum as a single investor that had deposited too much money to receive the guarantee.
"What we don't have is the look-through mechanism that allows the guarantee to apply to the individual investor. The current cap does not look through the pooled amount to the individual holders of that aggregated sum of money," Codina said.
Treasurer Wayne Swan has announced a permanent guarantee on bank deposits of up to $250,000, effective from 1 February 2012. The cap replaces a previous government insurance limit of $1 million introduced in 2008 as a means of calming investor jitters as the full scale of the global financial crisis (GFC) became apparent.
"Because they are aggregating funds, the deposits very quickly get over the $250,000 limit, and the platform is treated as the single investor," Codina said.
"From the bank's point of view and the government's point of view, that's one investor investing more than $250,000 and, therefore, the investment is not guaranteed."
He said the FSC has made a submission to Treasury on lowering the guarantee to $50,000 as a means of levelling the playing field for fund managers.
"Our primary mechanism for not distorting markets was a lower level of guarantee. We thought the best way to ameliorate the impact of a guarantee was to set it lower rather than higher so that investment decisions were not distorted by the guarantee," he said.
"In our view, this is a structural inequity in the way that the guarantee is likely to be implemented. It's something we're in ongoing discussions with Treasury about."
Managed trusts experienced significant outflows as a result of the GFC, and Codina said that in many cases, the funds had yet to flow back in.
"In some respects, if we return to more normal market conditions, the cap will be less important, but while we have volatile markets, the cap will still be a very relevant consideration in the minds of investors," Codina said.
