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Wider APLs Unlikely to Create Better Advice

Wider approved product lists (APLs) will do little to reduce the risks of poor quality advice, according to ASIC, which has claimed structural bias and adviser incentives have been the key drivers of poor advice to date.

The regulator made the claim in its submission to the Parliamentary Joint Committee Inquiry into Life Insurance and added that while it agreed with the contention that wider APLs could improve competition, they would not, on their own address the risks of poor-quality life insurance advice.

“…a wider APL may not protect consumers from the poor outcomes that can result where the adviser has a conflict of interest…”

The regulator stated problems with advice were not unique to vertically aligned advisory groups and that existing wider APLs did not reduce the likelihood of poor advice either.

“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,” ASIC stated.

“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,” the regulator stated.

Instead, ASIC referred back to its Report 413, from late 2014, pointing out that report found poor quality retail life insurance advice usually stemmed from adviser incentives that were not in the best interest of clients.

  • Md’a

    ASIC is at it again making broad sweeping statements with either insufficient evidence and no clarification what group of advisers they are referring to i.e. employees of the vertically integrated organisation as apposed to business owners licenced under a dealer group which is owned by the vertically integrated business. I run a number of risk advice business and across each of these the product of the integrated business runs a poor 3rd or 4th in new business sales, this has been consistent over the last 5 years. We have no pressure from the dealer group or their ultimate owners to change this and I know from discussions with industry colleagues this pattern is wide spread across the industry.
    If ASIC wants to make statements in the media about what it thinks is going on print the whole story not just what suites their agenda, they know the facts so they should print the whole truth. I am sick of being beaten around the head by a lazy regulator that since 2003 has frankly not performed it job only to be rewarded by it’s chainman having his term extended and given an additional $m125 and yet they still peddle this rubbish in the media.
    The consumer has no idea of the difference in price and quality of life products obtained from the three channels of distribution, ASIC knows it full well so if you want to earn it’s keep it should do it’s job and educate the public or enforce that duty on the product manufacturers.

  • Danny

    ASIC dont get it.
    The problem with vertical integration is that the banks focus with advisers is product sales rather than making money out of clients paying fees. I have heard banks call their advisers the “Distribution Network”. When I was at a bank I looked after 400 clients with ongoing revenue of $800K pa and still had targets for upfront revenue when the focus should have been on looking after existing clients and protecting the ongoing revenue. When it became too difficult to achieve this I left and set up private practice. Renumeration of advisers in banks normally has artificial targets rather than looking at total revenue achieved. If revenue is ongoing or upfront what does it matter as a $1 is a $1, but in the banks you could have ongoing revenue of $1M pa and they still need you to achieve an upfront target to keep your job – what happens – oh – you don’t review existing clients and the banks didn’t care until ASIC made some noise. In our business ongoing revenue is the most important aspect as it is recurring – upfront only happens once.
    ASIC if you want to fix the problem with employed advisers outlaw these types of performance assessment models and make it that advisers are renumerated based on total revenue ie. 70/30 split or whatever . Get rid of vertical integration so that the focus of the banks is on providing advice not selling a product.