Dealer groups have resisted calls to aggressively cut down their approved product lists (APL), warning the move could be against clients' best interests as it could limit the ability of advisers to implement effective financial plans.
Infocus Money Management managing director Darren Steinhardt said while having a more concentrated APL would assist advisers in narrowing the investment universe, it also posed a risk.
"When maintaining a concentrated APL, there is a risk that it does not allow advisers sufficient scope to implement appropriate financial planning solutions to meet the needs of their clients," Steinhardt said.
"However, the broader the APL is, the greater the risk that advisers won't know the products sufficiently enough."
He said Infocus had been progressively working to reduce the number of products on its APL since 2009 and was aiming for a well-diversified list.
"The rationalisation process can be difficult at times, but this can be largely overcome through the effective communication as to the reasons why decisions have been made," he said.
"This should focus on the benefits it will bring to advisers and their clients in respect to the quality of the of the investment solutions offered to support their financial planning strategies."
Futuro Financial Services head Dennis Bashford said an overly concentrated list could constrict the opportunity set for advisers.
"The reason we don't want our APL to be too concentrated is that a lot of smaller funds and newer products are actually producing the best medium-term results," Bashford said.
"New products tend to be innovative and use new techniques for risk management. If you're not using those, you are limiting your opportunity set and as an adviser you are not doing the best for your client."
Lonsdale Financial Group chief executive Mario Modica said it was important for planners to strike a balance.
"I think the point of a concentrated APL is to allow advisers to know more about the products than they know otherwise," Modica said.
"But you need to have a mix between concentration and breadth to ensure that one, advisers know their products and two, they have sufficient scope that they can recommend products that suit clients."
Zenith Investment Partners director David Wright said dealer groups needed to be providing much more concentrated APLs so advisers had a good depth of knowledge and understanding of the products they were using in client portfolios.
"There is an increased focus on advisers to know the product that they are recommending to clients. So the days of 800 or 900 products on your APL are well and truly gone in our view," Wright said.
"A well-constructed APL with fewer products can be achieved as long as there is a cross section of high-quality managers across each of the investment styles with a quality back-up manager in each style and that are available on the investment menus of the platforms used by the dealer group."
