ASIC warns on vertical integration and APLs

The Australian Securities and Investments Commission (ASIC) has again pointed to vertical integration as an impediment to the delivery of unconflicted advice.

In a further submission to the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the life insurance industry, ASIC suggested that while open approved product lists (APLs) might lead to more competition and better consumer outcomes, problems would still remain.

Further it claimed that even if ASIC had the power to mandate an expansion of APLs, this would not necessarily deliver an answer.

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ASIC said that over-reliance on APLs might lead to poor advice if advisers did not conduct proper research on the client's existing non-APL products before providing ‘switching advice'.

"In ASIC's view, an expansion of APLs can contribute to greater competition and better consumer outcomes," it said. "However, a mandated expansion of APLs will not, of itself, address the risks identified."

"This is because:

(a) Our regulatory experience suggests that advice providers operating within a vertically integrated group tend to recommend in-house products over non-related products even where their APL includes a wide range of non-related products; and

(b) Even in circumstances where an advice provider does not operate within a vertically integrated group, a wider APL may not protect consumers from the poor outcomes that can result where the adviser has a conflict of interest."

ASIC cited the example of an advice provider receiving remuneration to recommend one product on their APL over others, stating that this "might provide an incentive that is not aligned with the adviser's obligation to the client, i.e. the best interests duty".

The regulator said that its Report 413 had concluded that the drivers of poor quality retail life insurance advice were adviser incentives and failure to consider the relationship between life insurance and superannuation.

"Therefore, while ASIC supports the recommendation for broader APLs, we note that this move on its own is unlikely to improve the quality of advice," it said.

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Certainly makes business sense to have a majority of clients in the same platform. Better client service in the end. I can't see the problem as long as it's features and pricing are in the ballpark. There's way too much focus on costs as if that's the only determining factor in which fund to use. There are many other factors. If all super funds were obliged to allow for financial advisers to charge an ad-hoc advice fee to their members you would see less incentive to switch funds. Unfortunately most the industry super funds do not, or have stitched up a private deal with certain advice providers or associations to protect their FUM rather than members interests. That's wrong also, and a conflict. Why isn't that investigated by ASIC?

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