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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.

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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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When you operate outside of a major dealer, there is only one major thing that matters...your PI insurer. That aside, its worth every minute.

An APL (which can include restricted/non-approved products that have been researched by the licensee to give advisers the ability to look after clients who may have legacy superannuation, investment or life products) plays an important role in meeting the advice safe harbour provisions. If a boutique or self-licensed practice has no APL, unless they have another process to show some level of product due diligence, how can they show under s961B(2)(e) that they have "(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and (ii) assessed the information gathered in the investigation." I completely understand the issues that the banks, AMP, the industry funds and others have with vertical integration and mismanaging conflicts of interest but I don't see how removing APLs would reduce risk or provide a better outcome for clients.

The APL has traditionally been used to promoted licensee products. For licensees that are not owned or licensed by a product provider (like us), the APL serves a very different purpose.
Firstly, there needs to be a criteria set that meets the best interest of the client so that only quality products are recommended. This means utilising research houses and analyst ratings.
Secondly, there needs to be an exemption process that allows advisers to retain products outside the APL based on individual client circumstances.
I disagree with the FPA regarding the obligation for a licensee to have an APL. Responsible governance, supervision and monitoring is unlikely to be adequately met without an APL. PI insurers are also unlikely to cover the universe of investing without methodology to remove inadequate products.
Seona Murphy, MFG Advice

An APL is the requirement of the PI Insurers
How else are they going to assess the risk of what products you intend to use?

Maybe the Royal Commission should investigate the abysmal PI Insurer market! Lots of price gouging.

Now I understand it. Obviously, the reason PI insurers have left / are leaving the financial planning risk area in droves is because they're embarrassed at all the profits they're have made / are making.

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