Are APLs really necessary?
Who does better in terms of generating returns for their clients – self-licensed financial planners or those working under a major licensee and tied to an Approved Product List (APL)?
This is one of the questions being posed as the industry positions to move beyond the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry at the same time as the Financial Planning Association (FPA) has pointed to the fact that there is no legal requirement to have an APL.
Money Management is conducting an analysis of the outcome of the asset allocations pursued by both self-licensed planners and those tied to dealer group APLs to gain a picture of what is working most effectively.
In a submission recently filed with the Royal Commission, the FPA said that while APLs were commonly used by licensees to provide a list of financial products for their representatives to consider when providing advice, they were also a product of the requirements of professional indemnity insurers.
“… there is no legal or regulatory requirement to have an APL,” the FPA submission said. “It is a requirement put in place by some Professional Indemnity insurers, particularly in relation to superannuation and investment products as the APL can offer additional consumer protections due to the plethora of products available on the market. “
“However, with only 13 life risk insurance providers operating in the Australian retail consumer market, and the Best Interest Duty applying to financial advisers' use of APLs, some professional indemnity insurers do not require an APL for life risk insurance products,” it said.
“While licensees conduct specific due diligence on and scrutiny of products listed on their APL which can offer consumer benefits, we are aware that there is current debate about whether the APL has limitations and is therefore detrimental to consumer,” the FPA submission said.
“From a financial advice perspective, the law permits consideration of products both on and outside the APL and requires the adviser to seek permission from their licensee to recommend a product outside of the APL,” it said. “It should be noted that this legal requirement was only introduced in 2014 as part of the Future of Financial Advice (FoFA) reforms and is therefore only now being tested.”
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