Two industry leaders have poured cold water on the commission versus fee-for-service debate.
The debate was refuelled after financial services firm, EY stated in its submission to the Financial Services Inquiry that a fee-for-service structure would mitigate exposure to conflict of interest and bring consistency of regulation between mortgage broking and financial planning industries.
MFAA CEO, Phil Naylor told Australian Broker
that the comment from EY is unwarranted as it assumes that the circumstances in the financial planning industry should be superimposed onto the mortgage broking sector.
“In fact the operations are quite different. In financial advice the money flow is from the consumer (investor) to an investment advised by a financial adviser. In broking the money flow is from a lender to a consumer (borrower) based on the mortgage broker’s recommendation as to what is appropriate for the borrower.
“The risk is different and should not be confused. The well -publicised events which cost millions of lost funds and life savings to consumers and drove FOFA have not occurred in broking and nor could they because of the direction of the money flow,” he said.
FBAA CEO, Peter White shared the same opinion that EY may be drawing a line that shouldn’t be drawn. He also believes that brokers haven’t done anything that would cause disclosure of interest to be an issue.
“I think the finance broking sector have come great lengths in making sure they mitigate issues that would surround conflict of interest.
“If there is a conflict of interest, try and avoid it. But if there is a commercial reason as to why one would occur, then you need to disclose it and be very upfront with your client before things progress down that path. As long as you detail it properly and the client accepts it, then there is no problem – and brokers are doing this,” he said.
White also added that while many FBAA members choose to work on a fee-for-service structure, he doesn’t believe an industry-wide fee-for-service structure is desirable. However, brokers should always be prepared.
“Brokers should always have a ‘Plan B’ just in case. I encourage brokers to at least think about what they would do if the industry did move towards a fee-for-service structure. It is always good to have protective measures for your business,” he said.