Horizontal integration – where mortgage advice and financial advice are integrated – creates a risk of “conflicted remuneration”, according to a submission to the Financial Services Inquiry.
Mortgage contest site, flongle said in its second-round submission to the Inquiry that although there may be compelling reasons for both consumers and advice professionals to integrate the two, mortgage broker businesses will reintroduce “conflicted remuneration” to financial planning advice – which has been scorned under FoFA reforms after the recent financial planning crisis.
“Horizontal integration of conventional mortgage broker businesses with any financial advice practice creates a situation whereby conflicted remuneration has again been reintroduced by companies and individual Licenses or authorised representatives of an Australian Financial Services License.”
Mortgage Choice, which was specifically named in the submission by flongle, recently diversified into financial services about 18 months ago. Australian Broker
spoke with Jessica Darnbrough, Mortgage Choice spokesperson who said if the two are kept separate then it doesn’t cause an issue.
“At Mortgage Choice, we believe it makes sense for mortgage brokers and financial advisers to work closely together, especially considering that mortgage broking customers are often making their biggest financial commitment and they need to ensure both their new asset and their personal risks are protected,” she said.
“We absolutely believe the two sectors can work together. From our own perspective, we believe it is important for each professional to be a specialist in their own field and not have a mortgage broker or a financial adviser wear two hats.”
However, flongle says integrating the two under one roof creates confusion for consumers and argues that commission should also be reviewed in mortgage broking.
“Notwithstanding, it is a somewhat confused message and an unreasonable expectation for a consumer to rely on independent advice in their best interest on one strain of product from one part of a business and not be safe in expecting the same standard of professional care when dealing with its mortgage advice department or the planners referral partner,” the submission states.
The broking industry has already hit back at flongle before for questioning commission related bias, as the website markets itself as unbiased and independent due to its fee-for-service structure.
, CEO of the FBAA
said, “Under the NCCP, there is not that bias anyhow. The way that the NCCP is written is to ensure that things like that don’t happen, and speaking on behalf of our members at the FBAA
, I can say that I really don’t believe that is a big issue in our industry.”