Managed investment schemes (MIS) and when they must be registered

The term “managed investment scheme” is often used but not always well understood.  You might have come across the term while planning a new business venture which will involve attracting investors and having them contribute funds.  Or perhaps you want to provide advice to investors about an investment product and you are not sure whether it is covered by your existing Australian financial services (“AFS”) licence authorisations.

Either way, it is important to understand whether what you are planning involves a managed investment scheme (MIS), whether it comes within the AFS licensing regime and, if so, whether it must be registered.  The outcome of these considerations will determine which regulatory requirements apply to you.

What is a managed investment scheme?

Your business venture or investment opportunity will only be a managed investment scheme if it meets the definition of “managed investment scheme” in the Corporations Act 2001 (“the Act”).[i]


The first part of this definition is that there must be a “scheme”.  The term “scheme” is not defined in the Act but a number of decisions exist which indicate how the term will be interpreted by the Courts.  One well-recognised decision states that the “essence” of a scheme is:

a coherent and defined purpose, in the form of a ‘programme’ or ‘plan of action’, coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan.[ii]

A good place to look for evidence of a scheme is a constitutive document, such as a trust deed.


The second element of the definition that must be met if there is to be a managed investment scheme is that:

people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not).

Working out whether people contribute money is fairly straightforward but money’s worth is a broad concept.  Depending on the situation, investors might, for example, contribute traditional investments (such as shares), rights to carbon credits produced by land use, or crypto assets.

In order to satisfy this element of the definition, the money or money’s worth must be contributed in order to acquire rights to benefits produced by the scheme.  This invites us to look at the reasons for making the contribution and not at whether the scheme will actually produce benefits or whether the investors will have enforceable rights to those benefits.

Pooling or common enterprise

The next element of the definition is that:

any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders).

This element of the definition requires that the production of the benefits be intended to derive from the pooling of the funds (or their use in a common enterprise).  Depending on the underlying assets of the scheme (if it has been established that a scheme exists), a plethora of different benefits are possible.  One example of a benefit is that investors are able to diversify into areas where they would not otherwise have had sufficient funds to enable them to participate.[iii]

No day-to-day control

The next element of the definition is that:

the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions).

By way of example, consider the scenario where all the investors in a trust are also trustees of the trust.  In that case, they would retain day-to-day control and the definition of “managed investment scheme” would not be met.

The Act also lists a time-sharing scheme as being a “managed investment scheme”.  Further, it lists a number of schemes, funds or activities which are not managed investment schemes.

A unit trust will usually, by its nature, meet the definition of “managed investment scheme”.  (This is provided that it does not fall into the list of schemes, funds or activities which are expressly excluded from the definition).  However, not all managed investment schemes are unit trusts.  In fact, many are not.  Notable examples of other types of managed investment schemes are separately managed accounts and limited partnerships.

The simplicity with which we have laid out the features of a managed investment scheme above is deceptive.  In practice, there is often significant complexity in determining whether each element of the definition is made out.  Whether or not something is a management investment scheme can pivot on a single element and, thus, understanding this complexity is crucial.  This is not an area suitable for “DIY”.  You will need to obtain legal advice to be sure that the definition of “managed investment scheme” has been applied correctly to your situation.

Registered vs unregistered managed investment scheme

Once you have established that your venture or investment is a managed investment scheme, you will need to work out whether an interest in it is a financial product and, if so, whether the scheme requires registration with ASIC.

An interest in a managed investment scheme is a financial product unless specifically excluded (see below).

Under the Act,[iv] a managed investment scheme (where interests in it are financial products) must be registered if:

  • it has more than 20 members; or
  • it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
  • a determination [is in force under which ASIC has determined that a number of managed investment schemes are closely related and must be registered when the total number of investors across all the scheme exceeds 20].

Case law generally indicates that a person promoting a single scheme with fewer than 20 members will not be regarded as being “in the business of promoting managed investment schemes”.[v]

Note that if all of (a), (b) and (c) are not met then interests in the managed investment scheme are not financial products at all.[vi]  This is why family trusts will not usually be regulated by ASIC even though they are, technically, managed investment schemes.

It is important to note that the need for registration set out above is overridden if:

all of the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made.

The key two situations in which a Product Disclosure Statement (“PDS”) will not be required are where:

  • all the members of the scheme are wholesale clients; or
  • the issuer of the interests in the managed investment scheme issues financial products to no more than 20 people in any 12-month period and raises no more than $2 million from issuing financial products in any 12-month period.[vii]

If the managed investment scheme meets either of these criteria, it does not need to be registered, regardless of whether it meets (a), (b) or (c) above.  If you were wondering “What is an unregistered managed investment scheme?”, then this is it.

Situations in which a person may be treated as a wholesale client are set out in the Act.  Common examples include where:

  • the person provides an accountant’s certificate stating that they hold net assets of at least $2.5 million or gross income for each of the last two financial years of at least $250,000; or
  • the value of the investment is at least $500,000.

For a detailed explanation of the wholesale client tests, see the following article by Holley Nethercote Partner, David Court: Retail vs Wholesale Clients – Regulatory Concerns and Responses.

A managed investment scheme that is not registered by virtue of the fact that all its members are wholesale clients, is often called a “wholesale managed investment scheme”.

Again, it is easy to underestimate the scope for complexity here.  Considerations like whether a person is “in the business of promoting managed investment schemes”, or the number of people to whom financial products are issued and the funds raised as a result, require careful legal expertise.  It is important to get this analysis right so that the managed investment scheme and its associated activities and governance framework can be set up in compliance with the law.

If you’re seeking more information on MIS generally, watch this expert interview on establishing an MIS.  If you’re seeking specific advice about your MIS, book a consultation to speak to one of our experts.

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Author: Samantha Hills (Partner)

This article was published in the Financial Standard – Understanding managed investment schemes: Licensing and registration.

[i] Section 9.

[ii] Australian Securities and Investments Commission v Takaran Pty Ltd

(2002) 170 FLR 388; 43 ACSR 46; [2002] NSWSC 8343 at [15].

[iii] Second Reading Speech to the Managed Investment Bill 1997.

[iv] Section 601ED.

[v] ASC v Stephen Su [1995] SASC 5061.

[vi] Section 765A.

[vii] Section 1012E.