Among the recent regulatory upheavals within financial services is the productivity commission’s recommendation that “ASIC should assess the feasibility of financial advisers providing advice on home loans and other credit products via a new Australian Financial Services Licence that would not require a separate Australian Credit Licence to be obtained”.
The commission suggested the scope of the credit advice would differ from that provided by brokers, with advisers providing “holistic advice to customers, rather than the often-administrative services, such as completing the loan application process, currently associated with mortgage brokers”, suggesting there is no fundamental difference in the skill set required and it would provide consumers with greater choice, drive innovation and reduce financial costs.
Having worked in a self-licensed advice practice (that incidentally maintained an AFSL and an ACL), and now as owner of Equilibria Finance – a mortgage and finance broking practice – what is clear is there are fundamental differences maintaining or being an authorised rep under an AFSL and an ACL. The main differences cut across compliance and education as well as the potential impact on the client outcome.
Compliance
Currently advice and broking have their own specific set of compliance requirements tailored around the specific stages of the client transaction – the engagement, the advice and the ongoing client relationship – particularly for advisers, for example the annual opt-in requirement. While there is some overlap in the compliance regimes, the separation of the regulatory frameworks protects the integrity of the advice and is a cornerstone to ensuring the most appropriate client outcome.
Education
For all professions, ongoing education and training through the CPD system is key. For advisers this pathway is the DFP, the ADFP, then a masters or CFP with specialist training and the annual CPD requirements ongoing. Credit has a separate set of requirements, the Certificate IV, Diploma, two-year mentoring, and the ongoing annual CPD requirement. Additionally, brokers have individual accreditations with the providers on their panel (it is not uncommon to have around 25) – and the required knowledge and competence to keep abreast of their policy and changes, as well as ongoing obligations with their licence provider and aggregator.
What the separate licences provide from a compliance and educational perspective is clear guidelines for financial advice and credit advice. Allowing credit advice under an AFSL has a significant risk of the two licenses drifting away from each other as guidelines and regulations evolve with changing environments – where we potentially end up with a hybrid guideline for offering credit advice under an AFSL that doesn’t maintain the rigour or capture all the changes that may be made to the credit licence – potentially creating a situation where the compliance or educational standards drop. This compromises the quality of the advice, choice and ultimately the consumer outcome.
It is far better to keep the licences responsible for the types of advice they cover – this still allows a single practitioner to still offer both, however under the strict guidelines of the two-separate licences, noting that there may be some merit in prior recognition for any training and educational overlap, and for ongoing CPD that satisfies both requirements – simply achieved by loading the same event in each register where appropriate.
Client outcome
Central to advice and broking practices are client relationships and providing an outcome that is appropriate, considered and in their best interests, free of any conflicts.
Core to the broker proposition, and ultimately the client outcome, is the choice and service they offer. A critical consideration is whether an adviser offering “holistic credit advice” under an AFSL will be able to maintain a broad panel of providers and stay abreast of the credit policy and product changes? Or will they maintain a limited panel of a few providers (potentially aligned to their licensee), that they refer the administrative services into? Potentially limiting choice, the credit advice given to the client, and potentially creating conflicts and compromising the clients ongoing needs and annual and milestone reviews.
Models that work
The models that I have seen and believe work best maintain the integrity of the AFSL and ACL and provide exceptional client outcomes.
- The advice practice “brings it in house”:
In this model the practice invests the time, resources and money to properly integrating mortgage broking into their practice. They have understood the risk, complexity, compliance and time commitment involved. It is effectively a strategic business decision to run a broking arm and deliver a client outcome comparable to a broker. The broking is done either by the adviser – who maintains the same obligations as brokers – or an actual in-house broker.
- The provision of credit advice to their clients through a strategic alliance:
In this model, the credit solution is integrated into the practice through a strategic relationship with an external broker. The broker provides the credit advice – integrated into the client’s advice – and manages all the costs and risks associated with running a credit licence and broking business. In fact, so effective they can be, for some, the broker works in the advice office a day or two a week, will attend client meetings and assist with the marketing and education of the offer to the clients and staff. Additionally, a mutually beneficial referral relationship can develop with each introducing new clients to the others practice.
Summary
Any professional practising both disciplines must be competent in both, be able to keep abreast of the legislative, product and policy changes in both, and provide the same quality of advice and choice that clients currently have access to.
And while advisers and brokers have a lot of natural synergies, the current AFSL and ACL regime provides a clear regulatory and educative framework that ensures the integrity of each licence is maintained, and that the client has access to choice and the most appropriate credit solution aligned to their ongoing advice and needs.
This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.
Anthony Landahl, managing director and senior finance broker, Equilibria Finance
a financial planner – who will soon be required to complete an exam, a post graduate qualification and meet a much higher threshold of the best interest duty – is far more qualified and better placed to provide mortgage advice than a cert iv qualified mortgage broker
if we can write risk, we can easily write a mortgage, a far simpler product for us to understand.
it’s ridiculous for us to have to have an afsl and acl. the requirement to hold an ACL if we already hold an afsl is redundant and should be rid of asap
once the housing bubble implodes, a mortgage will also become a financial product.
When considering the massive impact this has on any family and individual the amount of debt they carry how can this not be a part of the process. Sadly over the years i have constantly come across mortgage brokers who are happy with the fact families have high debt levels and no adequate risk strategy in place as they are not successful in opening the conversation as they are only interested in the sale. Debt is a part of holistic advice and planning,and needs to be married with a robust conversation about a risk strategy and what it means. With the level of compliance and education we are use to dealing with i am sure we will be able to handle it.
No surprise that a mortgage broker would be against a recommendation that streamlines processes and reduces regulatory overlap. Appropriately qualified financial planners are more than capable of providing excellent finance and mortgage broking services to their clients. In fact, many of them already do… but they need to hold an AFSL and an ACL. The Productivity Commission’s recommendation is sensible because it reduces regulatory double up. It also means that the mortgage broking industry has an incentive to move to a fee for service model and away from a pure commission model… just has been imposed upon financial planners.
My wife and I have a financial planning/mortgage broking business. She does the FP and I do the lending. There is no way you could competently and I mean really competently do both. At best it would be a jack of all trades master of none scenario. Clients don’t pay a premium for that.
Ive been a mortgage broker previously… Found it pretty simple to only need to find a loan ‘not unsuitable’ in comparison to meeting ‘best interest duty’ being a planner.
While this is true, the only thing to add is that the mortgage broking scene changes constantly. In regards to what lenders will or wont allow, what income can be included. If you are actively doing both all the time, you could probably do it. The danger is for those who might only write a loan once a month. They may find that too much has changed between loans (could be several months before going back to a particular lender). They could find themselves over promising and under delivering. That being said, I think it is doable. As a planner though, I have much more fun doing planning than broking. That’s me personally.
I understand your point. It’s a bit like a financial planning firm that offers wealth management and risk advice or aged care advice… you may need too have different people with different skills doing each role. I’m really commenting on the licensing side of things. I can’t see why the AFSL regime can’t accommodate the ACL requirements and avoid a businesses having to hold both.
Who couldn’t competently do both? You or your wife?
I’m a financial planner who branched out into lending, and while it is extra work, the relative simplicity of mortgage broking makes it quite manageable for a well trained financial planner. Not so sure it could work the other way round though.
Clients value dealing with a single person who fully understands their situation and can provide an integrated, one-stop, solution.
I agree with you.
as the client’s financial planner, I am their personal CFO, I manage all of their finances, if something particularly complex comes up, I bring in a specialist to [u]assist me[/u]
financial planners are much more extensively qualified, even at the ADFP level ( soon a minimum post grad qualification), broad cpd requirements (not just lending), and compliance obligations than mortgage brokers.
most mortgage brokers would not even know how to work out the amort function on their financial calculator
clients value this integrated holistic approach and pay a premium for the service, i am already doing it, and i encourage my fellow professional colleagues to pursue this for yourselves.
best,
high quals fp