A product disclosure statement (PDS) is a document that must be provided when offering a financial product. The Corporations Act 2001 (Cth) defines financial products. It includes things like shares, credit cards, loans or bonds. This Act also governs the preparation and content of a PDS. A PDS is a type of disclosure document. It informs consumers of key product knowledge, the risks attached and costs involved. It aims to protect consumers by providing them with information necessary to make an informed decision. Many financial products require a technical knowledge that puts the seller at an advantage compared to the buyer. The PDS gives essential product information upfront. In this article, we’ll explain how a product disclosure statement (PDS) works and why it’s important.
Purpose of a PDS
As mentioned above, the key purpose of the PDS is to disclose key information to help consumers make informed purchases. ASIC has set out a list of ‘Good Disclosure Principles’ to help product issuers prepare a PDS. These principles are:
- a) Disclosure should be timely.
- b) Disclosure should be relevant and complete.
- c) Disclosure should promote product understanding.
- d) Disclosure should promote product comparison.
- e) Disclosure should highlight important information.
- f) Disclosure should have regard to consumers’ needs.
Product issuers should consider these in creating their PDS. This way, the PDS can best meet its purpose. These principles give an insight into the benefits the PDS can provide for consumers. One historical issue with the PDS was that it can be a very long document, often hundreds of pages in length. However, a 2012 amendment allows for shorter PDS for common financial products. These shorter statements are a maximum of 8 pages and summarise the key information found normally in a standard PDS.
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What should be included in a PDS
A PDS includes all the essential information around a financial product. This includes benefits, risks, costs, fees, special conditions and dispute resolution procedures. As per the Act, the PDS must contain such information that is reasonably expected to have a material impact on the client. Because of this, a PDS will vary depending on the specific financial product offered.
Differences from other disclosure documents
A PDS differs from other disclosure documents. For example, a PDS and prospectus do not differ greatly in terms of content. However, a PDS is client focused whereas a prospectus considers the needs of investors and their advisors.
A PDS also differs from a financial services guide (FSG). A FSG describes the services of a financial services licensee. Again, while the content between these disclosure documents are similar, they are used in different situations.
Conclusion
Clearly, the product disclosure statement plays an important role in the purchasing of financial products. When buying a financial product, it is important to read the PDS to ensure you are making a fully informed decision. By comparing the PDS between different financial products, you may be able to find a better product. For major transactions, enlisting the services of a business finance lawyer may help to break down a complex PDS.
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