With advisers aiming to provide more holistic services post-FOFA, convergence with the mortgage broking industry is increasing. So what does the new landscape look like? James Mitchell and Stacey Moseley report
Convergence of the financial planning and mortgage broking industries is on the rise. In this, the inaugural 2014 Financial Services Convergence Report, we show how these areas are evolving.
Interestingly, of the 289 financial service providers surveyed (respondents included mortgage brokers, financial planners, finance brokers, accountants, risk advisers and paraplanners), more than 30 per cent intend to integrate financial planning or risk advice/mortgage or debt advice into their business in the next 12 months.
A significant 49.5 per cent of respondents have at some time in the past five years integrated financial planning or mortgage broking into their business.
More than anything, planners believe integration will improve client relationships, with 82 per cent agreeing that having an integrated product and service offering would bolster their relationships with their clients.
This sentiment appears to be gaining strength, with 72.1 per cent thinking convergence is feasible and 44 per cent believing most planners will offer mortgage and debt advice over the next five years.
While some say the client is driving the trend through their desire to have all their financial needs met under one roof, others maintain convergence is a necessity borne out of FOFA and the changes to the rules around conflicted remuneration.
Overall, more than half (58.2 per cent) of the financial services professionals surveyed do not offer mortgage and debt advice/products such as residential mortgages, specialist lending and leasing and equipment finance in addition to financial planning.
Interestingly, the number of financial services professionals who believe a holistic service offering is a true proposition does not necessarily correlate with the demand for it.
A majority of surveyed respondents indicated they have been occasionally asked by clients if they are able to provide debt and mortgage advice (48.2 per cent), while 25.5 per cent said they had been asked “frequently”.
However, nearly 79.1 per cent of respondents think it is a true proposition to be able to offer solutions – including mortgages – for all of their clients’ financial needs.
Omniwealth managing director Matthew Kidd is one of them. “Ultimately, when a client can meet their accountant, financial planner, mortgage broker and lawyer for estate planning all under one roof, then that is a true proposition,” Mr Kidd says.
Omniwealth is one example of a multi-service business where each service pivots around the financial planner.
Mr Kidd believes convergence is on the rise, and that it will be driven by regulation and the client’s desire to have all their needs met in one place.
“This is where the industry has got it wrong for so many years,” he says. “What are we in business for? We are in business to service the client.
“To turn your back on that is negligent, as it means the client must work harder to get a result. It is really your job to make it easier.”
Mortgage brokers and financial advisers have different views on convergence.
For Tim Brown, chief executive of diversified brokerage Vow Financial, the future of convergence is written on the wall.
“Convergence exists because it just makes sense,” Mr Brown says.
“When you are sitting down with a client, you have pretty well done 75 per cent of a statement of advice needed to offer financial advice; all the broker/planner needs to do then is identify if the client has life or income protection and then it is quite an easy sell from there,” he says.
“It is in the broker’s interest to make sure a client is protected because you don’t want the mortgage going into arrears at any stage.”
However, when it comes to financial planners, almost half of the surveyed financial services professionals (48.9 per cent) do not intend to integrate mortgage or debt advice into their business in the next 12 months, 31.1 per cent said they would and 20.0 per cent are unsure.
Those who intend to integrate further services into their offering are most likely to recruit qualified professionals (43 per cent) or will personally qualify as a mortgage broker themselves (24 per cent).
In addition, 56.5 per cent of this group (those who intend to integrate mortgage and debt advice) are credit representatives and 43.5 per cent are Australian Credit Licence holders.
While convergence is a two-way street, there is more evidence of financial planners moving into broking than the other way around, according to Financial Planning Association of Australia (FPA) general manager, policy and government relations Dante De Gori.
“Financial planners are seeing some merit in becoming a credit rep or licence holder,” Mr De Gori says. “There is a lot more anecdotal evidence that I have seen of financial planners having mortgage broking services available as part of their business.”
According to our survey results, 44.4 per cent believe most financial planners will offer mortgage and debt advice within the next five years.
“I think convergence is a must,” says Omniwealth managing director Matthew Kidd. “I think there can be issues when it’s not done well, but as long as advisers and brokers know they are coming from two different angles, it can work.”
Waterfall Financial Planning director Dacian Moses adds that “there will be more planners entering the mortgage space”. “It will be driven by a number of different motivations,” he says.
While financial planners might integrate mortgage broking into their business for different reasons, 53.6 per cent of respondents said building deeper client relationships is the key driver.
The next big driver was to increase revenue (44.8 per cent), followed by the desire to build a strong fee for service business model (32.8 per cent).
“Whenever planners find it difficult to generate upfront revenue by selling investments, they move to selling commission or, in this, case selling loans,” Mr Moses says. “Preservation of revenue is one driver, I think.
“I’d like to think that that’s not my motivation. My motivation is I actually want to make sure that services are provided in-house where we have the capacity to do that effectively.”
Nearly 20 per cent of the respondents with integrated mortgage broking business are offering the service personally, since they are qualified mortgage brokers, and 20.7 per cent of them have a Certificate IV in mortgage and finance (FNS40811).
For those who are not a mortgage broker but have integrated mortgage broking into their business, 33.3 per cent have indicated they have already recruited a mortgage broker and 16.4 per cent have employed someone who has a Cert IV in mortgage and finance.
Further, 17.1 per cent of respondents are planning to do a Cert IV in mortgage and finance course and get themselves to qualify as a mortgage broker.
“Irrespective of which way you go – broking to planning or planning to broking and, to be quite frank, not just mortgage broking – if planners want to become accountants and vice versa you’ve just got to do the appropriate training and licensing requirements – at a minimum, obviously – and this blends in to the discussion about enshrinement,” FPA’s Dante Di Gori says.
Waterfall Financial Planning’s Dacian Moses has just completed his Diploma of Financial Services to become a mortgage broker after 20 years as a financial planner.
After two years of mentoring under the Mortgage & Finance Association of Australia, he will be qualified to write loans for his clients.
Mr Moses was driven to converge by his clients, and he wants to provide them financial advice on both sides.
“For my wealth accumulator clients, providing advice on the liability side of their balance sheet as well as the asset side is only normal,” he says. “They even expect it.
“So when credit licensing came on we got one and this just seems to me to be a natural further step. Instead of providing credit advice and tap dancing around the issue of recommending product, I go, ‘here is my credit advice and here is my product’.”
Mr Moses’ target client is a business owner who will typically have mortgage debt, for business or personal purposes or for both.
“It is just about being able to comprehensively advise on their assets and liabilities,” he says.
Convergence is most feasible for planners who service the small and medium enterprise (SME) market, says FPA’s Dante De Gori.
“Particularly in the boutique self-licensed space, where they are trying to cater to the SME market, they are trying to offer a number of services and be a one-stop-shop – services such as mortgage broking, stockbroking, accountancy services and some have even got in-house solicitors,” he says.
Is convergence viable?
To obtain data for the 2014 Financial Services Convergence Report, financial planners were surveyed by ifa while mortgage brokers were surveyed by sister publication The Adviser (which targets the broking industry).
A significant majority (72.1 per cent) of financial services professionals surveyed by ifa believe it is feasible for financial planners, with the appropriate licensing and qualifications, to offer mortgage and debt advice. Over 95 per cent of this group are financial planners/ advisers.
Meanwhile, 18.6 per cent disagree and 9.3 per cent are unsure.
By contrast, just over half (56.2 per cent) of brokers surveyed by The Adviser believe it is feasible for mortgage and finance brokers, with the appropriate licensing and qualifications, to offer financial advice, with 31.5 per cent disagreeing and 12.3 per cent unsure.
Over 95 per cent of this group are mortgage and finance brokers.
From these results it is clear that financial planners see convergence as more viable than mortgage brokers.
“It is more viable for a financial planner to add a mortgage broking component to their business than for a mortgage broker to add financial planning services, given the transactional nature of mortgage broking and the service-oriented nature of financial planning,” Omniwealth’s Matthew Kidd says.
“It stands to reason that if you’ve got the strategy and the service piece, it is all about not being transactional – clearly the emphasis is going to be on the adviser to control that process.
“By bringing a mortgage broker in-house, that is where that broker can add terrific value to the client relationship, but ultimately the adviser controls that.
“It just stands to reason that the advantage of the adviser bringing the mortgage broker in-house rather than [the other way around] is far greater.”
Most of the financial professionals surveyed have not previously integrated mortgage broking into their business, as they don’t offer mortgage broking (48.9 per cent).
A majority of those who indicated they did have integrated mortgage broking over 10 years ago (16.8 per cent) or between 2 and 5 years ago (17.5 per cent), and over half (55.7 per cent) have added residential mortgage into their business.
A final word
“I see the [convergence] trend increasing,” says Shore Financial’s Ben Warnes. “There is a huge opportunity for both sides of the relationship to create synergies.
“I can see a lot of mortgage brokers merging with planners, or simply having a referral relationship in place,” he says.
“I know some advisers will do mortgages themselves. It’s not for me – I don’t want to be a jack of all trades and master of none. I just want to do the best I can in my space and then refer to brokers who can do what they do best.”
Similarly, Waterfall Financial Planning’s Dacian Moses is an experienced financial planner, well on his way to becoming a qualified mortgage broker, but who still understands the value of referrals.
“You can wear a number of hats as an adviser,” Mr Moses says, “but I’m going to encounter situations where my mortgage broking expertise is not up to the job.
“In that situation, I will refer my client to a broker with more expertise.”
Others, like Matthew Kidd, who are building a holistic, multi-service business, sees clear divisions between mortgage broking and financial planning, with one being transactional and the other advisory.
“We’ve got three very good brokers working for us in our office,” Mr Kidd says.
“The problem is they are very transactional. It’s not relationships; it’s not about longevity. There is no service at all. It’s ‘get the job done, get the loan done and move on’,” he says.
“Advisers of course are completely the opposite. It is all about building relationships with the client, building trust, working with them as their go-to person with accounting and legal and controlling that whole process, as well as their portfolio management.”
However, adds Mr Kidd, there are synergies between brokers and planners that make convergence inevitable.
“At the end of the day, regulation is going to push the two together,” he says. “That is unavoidable.”
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