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The rip-off of managed investment scheme offer document writing


Scenario: A smart investment manager, John*, decides he has a powerful investment scheme and strategy and think if he can establish a Fund, investors from around the country will want to invest. Thinking he is doing the smart first step, John calls a lawyer, who professes they are a specialist in Funds Management.

Two doors can now open. One door leads to a Fund being set up in a reasonable timeframe and cost effectively whereas the other door leads to large legal bill and still no Fund.

Door One: The lawyer agrees to represent John and sources a Responsible Entity (RE for hire) that would agree to issue his Fund, and provide all the necessary documents and compliance. That RE for hire would normally work with John’s preferred lawyer or suggest their preferred lawyer. If John chooses to use his lawyer, it is likely the RE for hire will still charge a small review fee. The RE is carrying the risk of issuing the Fund and if the RE for hire considers John’s lawyers not up to the task, the RE won’t risk their licence to save John a few thousand dollars. For door one, click here.


Door Two: The lawyer fails to explain the above process and the potential risk of doubling up on costs, around drafting offer documents. Then the lawyers proceeds to draft an entire information memorandum or product disclosure statement with no consideration for the RE for hire that will issuing the Fund and taking on the risk. John then proceeds to reach out to RE’s for hire and is angry to realise the lawyer has charged him an enormous amount of money, for only a single offer document – when the same amount could have been enough to establish the entire fund and have it operating with the right RE for hire.


Sadly, the above scenario has crossed my desk several times in the last few months, only with real people with real money. When you decide you want to set up a managed fund, it’s a maze of regulation and service providers. You call a lawyer who tells you, you will need an offer document. So you commit to that. Then the lawyer explains you also need an Responsible Entity, Fund Administrator and Custodian. Three months later, the Fund still isn’t up and running and the lawyer is now convincing you that you should set up your own licence! Meanwhile, you haven’t even begun to think about your marketing and how you will raise capital.

A recent example I will share is an investment manager who has spent $60,000 on the offer document. Yes, $60,000. For a document that is less than twenty pages long. I felt for them. That’s what prompted me to write this article. They spoke to us about having us issue their product, as we offer RE for hire services, along with funds administration. We were familiar with the asset class they were investing in.

We would have charged them well less than $60,000 for the establishment of the entire Fund, offer document, Investment Management Agreement and Constitution, as would most REs for hire.

When the investment manager confronted the lawyer on his high fees for only a single document, the lawyer suggested we were the ones charging high fees and that we should accept the offer document without first conducting our own due diligence. Major takeaway here for would-be investment managers is just because a lawyer’s website mentions ‘funds management’ as a skill area, doesn’t make it so.

If you want a managed Fund, talk the companies that will actually be issuing the Fund.

*John is not a real person.