Dealer groups and advisers create barriers to market access for funds

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Advisers and dealer group approved product lists (APLs) can create barriers to entry in the market for fund managers, according to a report from the Australian Securities Investments Commission (ASIC) and Deloitte.

The 'Competition in funds management' report said the use of APLs was good for screening but affected the ability for fund managers to compete.

"A financial adviser typically offers advice regarding managed investment products with the use of an APL, which contains a list of products approved by the licensee (typically the dealer group) to be recommended to clients," the report said.

"The APL process undertaken by advisers can be effective at screening funds and ensuring that they are appropriate for investors but can also affect the ability of fund managers to compete by restricting access to investors.

"The products placed on APLs will strongly influence the pool of funds available to advised retail investors.

"Managed investment products that are not listed on a given APL are less likely to be considered by advisers who are using that APL."

However, it said if overly influenced by business development managers (BDMs) when making recommendations, advisers may not act in the best interests of investors, creating a principal-agent problem.

"Fund managers in consultation indicated that smaller financial advice groups have greater flexibility around how they select managed funds and are more likely to recommend funds that are not on the APL," the report said.

"Responses from the industry on this particular section of the interim report contested claims…
Chris Dastoor
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