Are APLs anti-competitive?
Do approved product lists (APLs) pass the competition sniff test?
That is a question which has been posed within a report by the key Joint Parliamentary Committee on Corporations and Financial Services report on the Life Insurance Industry which has recommended that the issue be referred to both the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
The committee wants the two regulators to “jointly investigate whether the past use of APLs in the life insurance industry breaches any anti-competitive laws they administer”.
The committee report said the report of the investigation should also inform the government whether the current legislation inappropriately constrains the capacity of ASIC or the ACCC to investigate anti-competitive behaviour in the financial services sector, including life insurance.
The importance of the committee report is that it has been tabled at the same time as the Productivity Commission (PC) continues its inquiry into Competition in the Australian Financial System a forum within which the Financial Services Council (FSC) has spelled out the relative virtues of APLs.
Discussing APLs in its follow-up submission to the PC, the FSC claimed advisers considered them to be “valuable tools in the advice process”.
“APLs serve as a risk management mechanism for both advisers and Licensees as research has already been conducted on the products on the APL to ensure they are suitable for the Licensee’s clients,” the FSC submission said. “APLs offer cost savings for Licensees and efficiencies to advisers, providing them with comfort that the products on the APL have been reviewed and approved by the Licensee’s own internal governance.”
It said the value of APLs had also been recognised outside the industry “in that often, professional indemnity insurance cover can be voided if the adviser makes a recommendation outside the APL and does not obtain the Licensee’s prior approval”.
“APLs for investment products can be particularly helpful in ensuring advisers do not recommend complex, high-risk investments to retail clients whose risk appetites are not aggressive. APLs are used by advice licensees and advisers selling life insurance to maintain a list of life insurance products that they have available to sell. APLs are also used for providing financial advice.”
The FSC’s rosy view of APLs needs to be contrasted with the somewhat cynical view of the Parliamentary committee, with its chairman, West Australian Liberal, Steve Irons writing in his overview that “the way that APLs are currently constructed can lack transparency and generate conflicts of interest that lead to selling life insurance on the basis of misleading advice that herds customers to products from insurers that pay the most to be on the APL”.
“The committee is not convinced that the draft APL Standard being proposed by the Financial Services Council will adequately address the full range of concerns identified by this inquiry,” Irons wrote. “The committee is therefore recommending that the life insurance industry should have, as a matter of urgency, a balance of affiliated and non-affiliated products on their APLs, and if affiliated products are recommended, the affiliation should be disclosed, and the customer should be offered a comparison with non-affiliated products.
Beyond this, the committee further recommends that the industry transition to open APLs.”
It will be up to the Government to determine what elements of the committee’s recommendations it adopts, but for a Government behind in the polls and with the Royal Commission currently underway, political expediency suggests it would not stand in the way of reviews by ASIC and the ACCC.
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