Markets need faith - Column

Jane-Anne Lee
— 1 minute read
Can planners use mortgages to improve services and boost business, or are they just too focused on the debt-free family home to utilise equity for wealth creation?
Some financial planners see the home loan market as a natural synergy - a way to improve services to clients, boost revenue, grow the business, protect the client base and embrace wealth accumulators who have mortgages on their minds. And of course, once debt enters the picture, there is the need for insurance.

Others believe the concept will not take off because too many financial planners focus on a debt-free family home rather than using the equity to create further wealth.

Financial planners need to understand mortgages if they truly want to know their clients' needs, Cannex head of services David Passier says.


"We think there is a huge synergy between banking products and financial planning. Many people have investments, but a lot have loans, bank accounts and credit cards," Passier says.

"We see it becoming a growing synergy between banking products in general and financial planners and therefore with mortgage brokers and financial planners, especially considering that 75 per cent of all financial planners are aligned to banks somehow."

He cites companies such as AMP, which has 300 approved mortgage consultants offering advice on mortgages, using AMP bank as the broker. Axa has also announced a recent alliance that encompasses about 900 planners.

"Quite a number have formed a relationship with brokers so there is a cross-referral of business," Passier says.

"They don't want to be involved in the mortgage industry but they have relationships. Tandem is one. MLC has taken a different tack. It has announced a plan to license selected mortgage brokers to become financial planners. They are being fairly particular about who they do that with. There is a range of different approaches. The common two are: do nothing or form alliances or some sort of association with mortgage brokers."

Association of Financial Advisers (AFA) chief executive Richard Klipin says it is still broker dominated.

"I don't see that changing. It is a specialist field and you do need specialist competencies for it," Klipin says. However, since  mortgage broking has boomed, more advisers have actively looked at whether to do it themselves or create a referral relationship. The reverse is also happening, with many mortgage brokers looking to provide broader financial advice for their clients.

"It goes to the heart of the issue: are you a specialist or generalist adviser?" Klipin says. "In AFA, we have members who are generalists who have mortgage brokerages inside the business and we also have the other model who are specialists who refer it out. It depends on the business model the adviser is running. But providing holistic advice means that if you can provide advice indirectly or directly on mortgages, you have a tighter relationship with your client."

If you take out a $500,000 home loan, you immediately have risk on the table so the need for comprehensive insurance comes firmly into focus. Often that is why there is a neat relationship between advisers who provide expertise on risk and investment and those who provide expertise on mortgages, Klipin says. The revenue can be good, too.

"Advisers who have diversified their business model and income streams weather the quiet times and the boom times really well," Klipin says.

Australian Unity Financial Planning set up a mortgage broking business with four brokers as part of its dealership five months ago. Head of dealer services Ross Johnston says the move has diversified the income of the dealership, provided a good fit and an additional service, and has helped the company to be more of a one-stop shop.

His company makes sure all its mortgage brokers are qualified and members of the Mortgage Industry Association of Australia (MIAA). It also creates another referral source, especially for financial planners dealing with wealth accumulators. Already, one of their retired clients, who became aware of the mortgage service, has asked if the firm could help his son. It will protect the client base, too, as there is the potential to be referred to other advisers if using an external mortgage broking service.

"We provide a full service of more than 35 different mortgage providers and more than 100 products. We can really shop around for our clients to give them the best deal, the most competitive on price and the most appropriate as far as features," Johnston says.

"It is really a good offer for clients. Our mortgage brokers are in a great position. They go out and get clients in the marketplace as well, not just from planners. We know most Australians are underinsured. When mortgage brokers are working with clients, they are in a good position to identify whether people are adequately insured to cover their debts if something bad happens. They can then refer them to a planner or specialist risk adviser. And vice versa.

"The risk adviser is also identifying debts to work out what cover they require and if they do a needs analysis they are in a position to ask if they are getting the best deal on their mortgage then refer them to the broker. It is an excellent fit. These days a lot of people have hefty mortgages and if  ou can get a few basis points off the loan it can equate to a lot of money."

Financial planner Richard McGrath, director of Hill Rogers Financial Services, is another whose venture into mortgage broking has been a success story. Responding to clients' dissatisfaction with banks and other mortgage brokers, the firm decided to provide its own service almost 12 months ago.

Each week, a mortgage broker spends one day in the planning/chartered accounting offices dealing with clients' debt issues - from refinancing to new home loans. The broker pays the firm part of his commission.

"That's been going on for almost 12 months and it's been fantastic," McGrath says.

Peter Wilson, operations manager of Centennial Mortgage, which has about a dozen alliances with planners, says an adviser company either brings in a broker on salary or outsources the mortgage side to mortgage managers such as Centennial. With dramas linked to about 90 per cent of mortgages, the last thing financial planners want is to be problem-solving  on a housing loan.

On a $450,000 loan, planners may get $2000 up-front for brokerage plus a $900 trail commission so "it's another source of income for them without the hassle", Wilson says. Internet access, rate and salary crediting are among the features planners seek for their clients.

"Working with planners is the main part of our business," Wilson says. "Mortgages can be a good income earner but if planners are trying to do it themselves they don't get the referrals we get. Our clients are their clients. Once they have locked in a service like us, planners are a lot more proactive."

MIAA head of education Kevin Conlon believes it's the reverse mortgage product,  rather than forward mortgages, that has brought the role of planners into the mortgage-broking arena. Conlon believes Australian consumers are familiar with the operation of traditional mortgages and it is likely they would proceed with those transactions based on their own judgment rather than seeking financial advice.

Culturally, financial planners have treated the family home as an asset against which debt should be repaid as quickly as possible rather than viewing the client's residential property as a source for funding other more diversified investment portfolios, he says.

He says the regulation of the mortgage market, which is state-based, is likely to change, with uniform regulation emerging in the near future. Currently, Western Australia is the only state to license the industry.

Resi Mortgage head of operations John Dedes says he has had interest from planners about reverse mortgages rather than ordinary mortgages.

"We don't supply directly to financial planners, but there is no reason we can't do that through our franchises. Financial planning works on the basis that you create your wealth by eliminating your debt. That concept needs to change to the point where you need to increase your assets, and the vehicle to help you get there is borrowing," Dedes says.

If planners are looking to service generation X or the latter part of the baby boomer market and the offspring of retirees, the mortgage product set gives them the opportunity to talk to these customers, Financial Wisdom general manager Paul Barrett says. This trend, which is broker-dominated, will continue to grow.

"Gen X is clearly in a different debt cycle at the moment. But if you want to build a longterm relationship with these people you need to be looking at providing services today. Being able to provide a debt solution is important. That's why we are seeing more financial planners integrate mortgages into their service offering and we are being asked more and more about our mortgage offering, not just residential but commercial as well," Barrett says.

Financial Wisdom may be owned by Commonwealth Bank of Australia, but it offers a suite of mortgage products from four providers.

"We feel we can monitor and supervise these products so product selection comes down to  more a case of what the demand is. Those four providers seem to have the underlying demand well covered," Barrett says. 

When selecting mortgage providers, Financial Wisdom looks for a range of qualities, including cost to consumers, strength of organisation, longevity, history of mortgage product, innovations, service and administration as wellas good sound credit policies.

Financial Wisdom announced a deal with Alliance Property Finance last month to enable financial planners to assist real estate customers with their insurance requirements.

"We feel there's an opportunity to provide insurance for people entering the debt phase of their life cycle," Barrett says.

"There is a natural fit. If you are having a conversation about debt, then there is absolutely a need to have a conversation about insurance." 


Markets need faith - Column
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