Australia: Conciseness In Product Disclosure Statements

Last Updated: 4 February 2008
Article by Russell Stewart


When you place a bet on a horse in a horse race, you know that you might lose your money. When your horse finishes nowhere, you might be disappointed, but you go into it with your eyes open and accept that there was always a risk that this might happen.

Investors who have lost money in investment schemes in recent times were not merely disappointed, but were upset because they felt that their money was exposed to risks that they didn't properly understand.

That might be the fault of the promoters, or the fault of investment advisers, or the fault of people who operated the investment schemes, or even the regulator may be to blame.

However, an additional complaint that has been voiced is that product disclosure statements (PDSs) are meant to help investors understand what they are getting into, and are failing to do the job.

This article looks at why that might be so and what could be done to improve the situation. (The discussion is about the principles as they affect PDSs in general, not with particular reference to any particular PDSs or schemes).

What Does The Law Require?

The Corporations Act (the Act) requires that a PDS contain specified information, including information about any significant benefits to which an investor will or may become entitled and the circumstances in which and the times at which those benefits will or may be provided, as well as information about any significant risks associated with holding the investment (paragraphs 1013D(b) and (c)).

A punter will usually be clear about the amount of the benefit (whether for a win or a place), that the chosen horse has to finish first (or in a place) and that any winnings will be paid on presentation of a winning ticket after the race is over. The punter will be equally clear that if the horse fails to win or get a place, he will receive no financial benefit. As with investing, the benefits and the risks are intimately related.

Importantly, the Act provides that in addition to the required information, a PDS 'may also ... include other information.' There is really no limitation on the extent or nature of the 'other information' that may be included.

ASIC has issued some guidance, aimed at ensuring that the 'required' information is not swamped by 'other' information that isn't required. However this stops short of being a legal requirement.

The Act specifically requires that the information included in a PDS is 'worded and presented in a clear, concise and effective manner' (section 1013C(3)). This requirement makes no distinction between 'required' and 'other' information. So it isn't actually the PDS as a whole that needs to be concise, rather it is whatever information the issuer decides to include that must be presented in a clear, concise and effective manner.

Notwithstanding this legal requirement, there are complaints that PDSs are too lengthy and that much of the information is not presented in a helpful fashion.

Why Be Concise?

Road signs have to be brief because often they have to be read, understood and acted upon in a short time. One word, such as 'Stop' is more effective than a paragraph or two. The fewer words there are, the more likely that the sign will be effective.

It is the same with a PDS. It is natural for potential investors to avoid reading a PDS that is long, dull, and mostly about matters that are not critical to the investment decision.

So there is recognition of the need to keep PDSs short. Not quite as short as a road sign, although there have been cases where the single word 'Stop' would probably have been appropriate!

Particular Problems With Risk Disclosure

It is pretty much standard practice that a description of the risks is set out in a 'Risks' section of a PDS in general terms.

For example, market risks (the potential for the prices of assets in the fund portfolio to fall as well as rise), currency risks, derivatives risks, gearing risks, the risks that the investment manager may make poor choices of assets for the fund portfolio, risks that individual investments in the fund portfolio might fall in value due to reasons affecting that specific investment, interest rate risks, risks due to one person's investment in a fund being affected by what other investors in that fund do, particular risks of acquiring or lending on property for development, where the development costs may escalate and the price may fall.

These general risk disclosures have an abstract feel about them. Their aim seems to be to be comprehensive, but not to tie down the particular risks affecting the particular nature of the investment being offered.

For example, it might go over your head that the investment you are about to make has lower priority than money borrowed from lenders holding first and second ranking securities.

Nor do you pick up that because the securities are over development properties, the properties on completion of the development might sell for less than their total cost, in which case some or all of the money you invested will be lost.

There seems to be a good argument for changing the present practice, so that the explanation of risks is located in the same place in the PDS as the description of the investment being offered and the possible benefits that might be available.

That does not rule out including anything the issuer wants to say about strategies for minimising the risks as long as that doesn't give the impression that the risks can therefore be ignored.

Clear, Concise And Effective

So how does it come about that PDSs are not more concise?

Several factors mitigate against conciseness.

  1. As we have seen, the Act doesn't actually require that a PDS be concise. What it requires is that the information it contains, both required information and any other information the issuer chooses to include, is worded and presented in a clear, concise and effective manner. It can be and often is a lengthy document even if worded and presented in a clear, concise and effective manner.
  2. However there are other problems. The PDS tries to do too many things. The usual PDS is not just a disclosure document.
  3. For example, a PDS generally serves as an invitation to invest. It has a promotional flavour, prepared by marketing people. The information is not presented in a neutral fashion, rather the emphasis is on presenting the investment options in the most favourable light. More than that, there is an expectation that a PDS will be a document of substance. Anything too slim might suggest that it doesn't relate to a serious investment.
  4. Then, there is another purpose served by the PDS. It (along with the scheme constitution) regulates the legal relationship between the investor and the issuer. It explains all kinds of things such as how units are priced, applied for and how your money is redeemed, tax, how managed investments work, the scheme constitution, distributions, fees and charges, conditions attaching to telephone, facsimile and internet communications and disclaimers of one kind or another. A good deal of this information is not there to assist an ordinary investor to make an assessment of the merits of the proposed investment purely as an investment. We can call this the 'terms and conditions'.
  5. Sometimes PDSs are written in a bland form of 'plain English' that can be quite long winded and leave the potential investor not much the wiser about the realities of the situation. That can be contrasted, for instance, with the sharp tongue of a capable financial analyst who can point out that low ranking loans in respect of real estate development are high risk. It may be unrealistic to expect issuers to provide this kind of perspective. In theory this is the role of the adviser or independent analysts writing in investment newsletters or the general press.
  6. it takes extra effort to express a PDS in language that is truly easy (and interesting) for the ordinary investor and is truly concise.

Short Form PDSs

In recognition of the problem, provision for a 'Short-Form PDS' was introduced by regulation in 2007 (regulation 7.9.61AA introducing Division 3A of Part 7.9).

An issuer must first prepare a full PDS.

The issuer may then prepare a Short-Form PDS containing a summary of those parts of the full PDS that provide the name and contact details of the issuer, benefits, risks, price, fees and charges, commissions, dispute resolution and cooling-off.

The Short-Form PDS must also make clear that a retail client may ask for a copy of the full PDS.

Although use of the Short-Form PDS may reduce the size of the document placed in a retail client's hands, it seems unlikely that it will be any more successful than the longer form in bringing the client's attention to the risks affecting the financial product concerned.

It can serve a purpose for issuers, however, by placing a relatively short document in the hands of the investor, while ensuring that the investor is bound by terms and conditions set out at length elsewhere.

Incorporation By Reference

Another method now available to issuers for reducing the size of a PDS is incorporation by reference (regulation 7.9.15DA).

Essentially, written statements or information that are publicly available in documents other than the PDS need not be set out in the PDS but instead the PDS may include sufficient information to enable a person to decide whether to obtain a copy of the full document and read it. The issuer must provide a full copy to anyone who asks.

That can be useful to save setting out full copies of documents such as annual reports, for instance.

However this does not go to the heart of the problem – ensuring that the attention of potential investors is drawn to the important risks affecting the product.

The Solution?

  1. In 2002, the Investment and Financial Services Association (IFSA) established a working group to develop models of concise PDSs. Considerable time and effort was devoted to this task and some excellent models were produced. The Australian Securities and Investments Commission also provided much helpful input to the process. It may be timely to resurrect these models and make issuers more aware of them.
  2. It would make sense to put the 'terms and conditions' matters into a part 1 of the PDS, as a document physically separate from the descriptions of the proposed investments, their benefits and risks. In effect, that 'terms and conditions' document would be like a contract between the investor and the issuer. This would include matters such as minimum investment amounts, withdrawal restrictions, distribution reinvestment arrangements, fees and charges, the application instructions and other product features and would attach the application form.
  3. For many investments the description of the product and risks could be done on a single page (a part 2 'product sheet' or where several financial products are offered, several product sheets). The descriptions of risks should be included on each single page in plain words, as part of the description of the investment and possible benefits.
  4. To insist that each investment description include a tailored description of the risks applicable to that investment. For example:
  • that your loan is to a company that is using the money to carry out real estate development, that the development may not be completed if the costs increase or the developer runs out of money, and when completed, the sale price may not be enough to pay back your investment once the first and second priority lenders have been paid;
  • in the case of an international shares fund, unhedged, that if the Australian dollar rises relative to the currencies of the shares held, that will have the effect of reducing the portfolio value in $A terms.
  • in the case of hedge funds, that the performance depends on the ability of the investment manager to predict events – consequently losses or reduced performance may result if the predictions turn out to be wrong.
  • Again, hedge funds may rely on unofficial markets continuing to be viable – if those markets become illiquid, the fund may be unable to dispose of assets or fund liabilities, with consequent losses.
  • the statement in the case of funds offering a product that invests across a range of sectors will need to refer to the important risks affecting the assets of each sector.

The point is to enable an ordinary investor to be sufficiently informed so that if the risks occur, they wouldn't be able to say 'I didn't realise that this could happen'.

Of course none of these measures will ever entirely solve the problem. Horses will still finish nowhere. Investors will lose money. But at least they won't find it so easy to blame the PDS.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.