Financial planning practices are increasingly seeing the value of “insourcing” functions that were previously provided by external partners, according to Phil Naylor, head of the Mortgage and Finance Association of Australia (MFAA).
“We have a number of mortgage broker members who are financial planners that have taken up mortgage broking [within their businesses],” Naylor says.
He estimates that as many as 10 per cent of the MFAA’s members are financial planners that have moved into mortgage broking, and suggests this is a growing trend.
Asked whether he believes more financial planners want to add mortgage broking to their list of in-house capabilities, Naylor says: “Yes, there’s no doubt about that. There is starting to be a convergence.”
However, he emphasises that they will always be two separate practice areas that each require industry-specific training and regulation.
“Five years down the track, you’ll see a lot more of it…I think it will always be separate, but I don’t see why there won’t be convergence at some level, providing you can manage the two separate risk and provide the two levels of advice that consumers expect,” Naylor says.
Though regulations for both financial planning and mortgage broking are enforced by the Australian Securities and Investments Commission (ASIC), they are subject to two separate pieces of legislation.
Mortgage broking is regulated by the National Consumer Credit Protection Act, while financial planning is regulated by the Corporations Act.
The client is always right
He believes that any trend toward a convergence of services needs to be driven by client demand.
“I think the bottom line is that you’ve got to make sure that’s what the client wants,” he says, referring to the ongoing issue of the Future of Financial Advice (FoFA) reforms. “That’s what the industry is going through at the moment, to find out what the client really wants. And I guess that will be determined over time.”
Evalesco Financial Services, part of the Professional Investment Services (PIS) dealer group, is one financial planning practice that will soon be fully equipped to provide mortgage broking alongside its core business of financial advice.
“We have to work out what’s going to give the best outcome at a client level. If we have to internalise functions, then that’s what we do,” says Marshall Brentnall, director, Evalesco.
“Generation X and Generation Y are really time poor. The last thing they want to do is invest time and energy in four different appointments, when you might be able to action all those things in one,” he says.
While Evalesco has been providing in-house mortgage broking advice for some time, through one accredited team member, its other staff will also soon also be fully accredited mortgage brokers.
Brentnall explains that being able to provide the service themselves instead of referring the client onto a third-party “gives us more certainty with regard to outcomes”.
He highlights the need for consistency as a key reason why Evalesco has chosen to go down the route of convergence.
“The model we had previously works pretty effectively as a single-person operation – there’s that reciprocity.
“But when you’ve got six advisers, each with a specific mortgage broker that they’re providing guidance to and assisting, you can’t guarantee consistent results for each one of your clients. That’s the main driver – consistency.”
Wearing two hats
Simplifying the client experience was a key reason to double-up in the services he provides, says Byron Murphy, a PIS financial planner and authorised credit representative for Australian Loans Company.
“I saw no point in having clients trying to explain to a mortgage brokers as well as a financial planner exactly what they wanted to do,” he says.
As Murphy explains, he has separate licensees, separate professional indemnity cover, “and it takes twice as long to do anything with a client because you’re looking at two sides of everything.”
But he says his clients appreciate being able to discuss both their wealth-building and debt strategies with the same person: “It’s a lot easier for them to have one person they can trust to deal with everything they need.”
Though it’s not without its challenges, especially when it comes to handling loan clients that have been referred to him by another financial planner. He says that in these cases, he has to be careful to keep the client at arms-length with regard to matters of financial advice.
“I’ve seen a lot of financial advisers try it, and find they don’t have the skills to do the credit side of it. I’m not convinced this is going to become widespread.”
Instead, he believes financial planning practices will offer a converged mix of services under the one roof, but provided by separate specialists.
“Someone will write a plan for their insurance, one for super and another for the debt management and loans. It’s very hard to be a jack-of-all-trades,” Murphy says.
