Approved Product Lists under scrutiny
Financial planning licensees need to take a close look at their Approved Product Lists (APLs) to ensure they are sufficiently broad, according to Minter Ellison partner Richard Batten.
Regulatory Guide 175 explicitly states that advisers may need to go outside their licensee's APL in order to meet their clients' best interests.
"At one level the legislation has not necessarily changed anything. But in practice - certainly in the short term - there's no doubt that APLs will come under increased scrutiny from advisers and from ASIC [the Australian Securities and Investments Commission]," Batten said.
"Advisers will feel it is much more incumbent on them [to go outside their APL] and much more empowered to question their APL," he said.
According to Madison Financial Group head of compliance Cheyenne Walker, APLs exist for risk management purposes for the licensee - they are not legislated.
"From an [professional indemnity] insurance point of view it's pretty hard to say you can go and use any product out there," she said.
"If an adviser does recognise that there is a product that's not on that APL that's in the client's best interests, they can make a special request to have it approved," Walker said.
The investment committee of the licensee will consider the product and then either reject it, approve it for use by that adviser only, or put it on the APL for other advisers to use, she said.
There is generally a leeway period when clients are moved over from one licensee to another, during which the clients are covered by the previous licensee's professional indemnity insurance, Walker said.
The new licensee usually has 12 months to review the client's products and ensure they are either on the APL or can be approved by the investment committee, she said.
But that leeway has shrunk in recent months, making life difficult for the new licensee, Walker said.
"I have noticed that [some dealer groups have] actually shortened that from 12 months to six months. And there was a recent Financial Ombudsman Service determination that three months is appropriate," she said.
"So when you're looking at advisers joining other adviser groups, they've got a three-month period to review all of their clients - which is absolutely crazy," Walker said.
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