In order to operate a Mortgage scheme for Investors the operator needs to hold an Australian Financial Services Licence (AFSL). An AFSL can be for “retail” and/or “wholesale” clients.
In very general terms, a retail client is a mum and dad investor, while a wholesale client is someone who is a sophisticated investor. The level of compliance (checks and balances, independent audit etc.) that is necessary for a retail client AFSL is much higher than that for a solely wholesale client. Please bear this in mind when choosing a mortgage fund into which you intend investing. GPS Invest holds an AFSL for retail and wholesale clients.
AFSLs are required in one form or another to be able to perform work in the financial services industry. An Investor should check that the operator has the correct licence. The ASIC provides on its webpage www.asic.com.au many useful search engines. AFSL licensee searches are currently in the “professional registers” search engine.
To operate a mortgage scheme, the licence should state that the licensee is licensed to operate a registered managed investment scheme which can hold mortgages. There should also be a reference to an ARSN (Australian registered scheme number).
Please be very cautious about investing in a mortgage scheme where the operator does not have an AFSL or the scheme does not have an ARSN.
The mortgage endorsement on an AFSL only entitles the scheme to hold mortgages. It does not authorise holding other scheme property such as cash. Many operators hold cash under their “incidental property” endorsement. The standard definition of incidental property in AFSLs is that it entitles other assets up to 10% of the scheme assets to be held. In order to hold any more than 10% of the schemes assets in cash, the operator should have a “financial assets” endorsement on their AFSL.
Let’s take a look at GPS Invest Pooled Fund (ARSN 149257410). We seldom hold less than 10% of the schemes assets in cash. It is necessary to hold cash for withdrawal requests, interest is accumulated, moneys are in transition following the payout of a mortgage before investment in a new mortgage, and some general reserves are kept to cover contingencies.
There are times to “cash up”, but, if a fund cannot do this because it would breach the operator’s licence conditions, then you should be asking questions.
GPS Invest Pooled Fund (ARSN 149257410) and GPS Invest Select Fund (ARSN 149257401) are authorised to hold financial assets and mortgages.