Legal
Risk warning
The short version: a deposit with a bank is covered by the Government guarantee up to a limit, and almost nothing else is. Bonds, managed funds and listings can lose money, including all of it. The longer version is below, product by product.
Capital is at risk
The value of investments and the income from them can fall as well as rise. You may get back less than you invested, and in some cases you may lose the entire amount. That is true of bonds, managed funds and listings. A cash account or a term deposit works differently, and comes first below.
Cash accounts
The rate on a high interest cash account is variable, and the bank can lower it at any time. A bonus rate is paid only in a month when its conditions are met, and may apply only up to a balance cap. Over time inflation can rise faster than the interest you receive, so the money buys less even though the balance has not fallen.
Term deposits
A term deposit fixes the rate until maturity, so if rates rise you stay on the lower rate. The money is committed for the term: most banks release it early only on notice, often 31 days, and pay less interest than agreed.
The Government guarantee has a limit and an edge
Cash accounts and term deposits are held by the bank in your name and are covered by the Financial Claims Scheme up to $250,000 per account holder, per authorised deposit taking institution, counted across everything you hold with that institution and any brand it trades under. Above the limit, what you get back if the bank fails depends on what can be recovered from it. A deposit with the Australian branch of a foreign bank is not covered. The guarantee does not cover bonds, including bonds and capital notes issued by a bank, managed funds or shares. The bank, not Towemer Wealth, holds your deposit and is responsible for repaying it. Cash in your Towemer account before it is placed is held in your own name and covered in the same way.
Bonds are not free of risk either
A bond has a date on it, which is what makes it useful, but it is not a savings account. Its price moves in the opposite direction to interest rates, so selling before maturity can return less than you paid. Repayment depends on the borrower being able to pay, and a borrower can fail. Inflation reduces what a fixed coupon is worth in real terms over the life of the holding. A bond held to maturity avoids the price risk and none of the others. Some of the firm's bonds are issued in US dollars, euros or pounds, and what they pay and what they are worth, counted in Australian dollars, rises and falls with the exchange rate.
Bank capital notes carry more
Some bank bonds on the firm's list are Additional Tier 1 capital, also called capital notes or contingent convertibles. They have no maturity date: the bank may repay them on a call date but does not have to, so you may hold them indefinitely or sell at the market price. The bank can cancel a coupon at its discretion, and a cancelled coupon is never paid. If the bank's capital falls below a set level, or its regulator decides it is no longer viable, the notes can be written down in part or in full, or converted into shares, and holders can lose everything while the bank's other lenders are repaid. In March 2023 the Swiss regulator had Credit Suisse's Additional Tier 1 notes written down to zero. Subordinated notes, called Tier 2, rank ahead of these but behind the bank's depositors and senior lenders.
Optional capital protection has limits
Where you elect the optional capital protection on a bond, a payment depends on a credit event being confirmed under the contract, and on the counterparty being able to pay. It does not protect against a fall in the bond's price or a move in the exchange rate, and a coupon a bank cancels under the terms of a capital note, or a write down, may not be a credit event.
Managed funds
A managed fund has no fixed rate and no maturity date. The unit price rises and falls with the value of what the fund holds, including in a fund that holds bonds or cash. Distributions vary, can be nil, and reduce the unit price when they are paid. The manager's fees are taken every year whatever the fund does. A fund quoted on the ASX can trade above or below the value of what it holds, and in a disorderly market selling can be slow or costly; a fund that is not quoted can delay or suspend redemptions. Read the Product Disclosure Statement and the Target Market Determination before deciding.
Past performance is not a reliable indicator of future performance
Where a fund's past returns are shown, they describe years that have already happened. Nothing on this site should be read as a forecast. A result achieved once, by anyone, is not an indication that it will be achieved again.
Newly listed companies carry particular risks
A recently listed company has a short public record and, often, a limited free float, which means its share price can move sharply on relatively little trading. Price stabilisation may operate for a period after admission, so early trading is not a clean market signal. The expiry of shareholder lock-up arrangements increases the supply of shares at a known future date. An allocation is never guaranteed, and can be scaled back to nothing.
Nothing here is a personal recommendation
The information on this site is general. It does not take account of your circumstances, objectives or tax position. If you are unsure whether an investment is suitable for you, speak to us or to another suitably qualified adviser before acting. Our disclaimer sets out what that means in full.
What protects you, and what does not
Four things sit behind the advice. It is worth knowing what each one covers, because the one most people assume covers investments does not.
- The Australian Financial Complaints Authority. Free to you, independent of us, and able to award compensation. Its decisions bind us if you accept them. This is the route that matters most in practice.
- Professional indemnity insurance. Section 912B of the Corporations Act requires a licensee advising retail clients to hold arrangements for compensating them for loss caused by a breach of its obligations. We hold cover that satisfies it, and the cover extends to advisers who have since left.
- The Compensation Scheme of Last Resort. Where AFCA has made a determination in your favour for personal financial advice and it has not been paid, the scheme can pay up to $150,000. It is a backstop for an unpaid determination, not a guarantee against loss.
- The Financial Claims Scheme. A government guarantee on deposits with an authorised deposit taking institution (a bank, building society or credit union), up to $250,000 per account holder per institution. A cash account or term deposit your adviser places for you is opened in your name with the bank, so it is covered on the same terms as any other deposit you hold with that bank, and counts toward the same $250,000. It does not cover investments. Bonds, managed funds, shares and listings are outside it.
None of these protects you from a market falling. They exist for the case where something has gone wrong with the advice or with the firm, not for the case where an investment has simply lost value.
The full position on compensation arrangements is in our Financial Services Guide, and the complaints route is on our complaints page.