This article provides a full explanation of what a Product Disclosure Statements (PDS) is, how to read a PDS and what to look for, what information a PDS contains and when they are required under Australian law.
What is a Product Disclosure Statement (PDS)?
According to MoneySmart, a PDS is ‘a document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product’s key features, fees, commissions, benefits, risks and the complaints handling procedure’.
Meaning, there will be a PDS for these types of financial products:
- Exchange Traded Funds (ETFs)
- Most managed funds (e.g. index funds or active investment funds)
- Superannuation funds
- Life insurance & income protection
- Home & contents insurance
- Private health insurance
- Car insurance
- Most other insurances
Essentially, it’s the document you want to ask for and read through (I’ll be the first to admit they’re pretty dry) — before investing in any financial product!
What does a PDS contain?
A PDS is required to contain all the information that you (as a ‘retail’ investor) could reasonably need to make an informed decision about whether to select a financial product or not. The PDS should also assist you in making accurate comparisons between different products and assist you in better understanding the product. Be warned, some PDS will leave you more confused than you started. If they do, call the provider and tell them it’s confusing, ring ASIC to tell them or go to another provider.
Some of the important information you should look for in the PDS includes:
- Who is issuing the product and how to contact them
- Key characteristics or features
- The main benefits and risks
- The fees, expenses and charges – yep, you’ve got to read the fine print
- Tax implications – tax, tax, tax — it’s important!
- The dispute resolution process and how to access it
When is a PDS required by Australian law?
A PDS must be provided to you when there is a personal recommendation, offer to issue or offer to sell a financial product to you.
Our regulator, the Australian Securities and Investment Commission (ASIC), defines a financial product as a ‘facility that is of a kind through which people commonly make financial investments, manage financial risks or make non-cash payments’. This includes things like managed funds, Superannuation, ETFs, Separately Managed Accounts (SMAs) and most insurances.
The disclosure requirements regarding financial products contained within the Corporations Act 2001 do not generally apply to securities (like shares on the stock exchange). This means that when you want to buy a share in Company X which is already listed on the ASX, the broker will not provide you with a PDS for the share.
Generally, when a company lists on the Australian Securities Exchange (ASX), our regulator ASIC requires it to provide a disclosure document, and the most commonly provided document to investors is called a prospectus. The prospectus must be lodged with ASIC prior to the issue of securities and contains a range of critical information.
To learn more about buying shares, take our free share investing course at Rask Education.
TL; DR
Before you choose a financial product, make sure you ask for, read through and understand the PDS. If you have any questions – ask the company directly or your financial adviser!
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