Broking in the wild west

Western Australia has been operating a mortgage broker licensing system for more than 10 years, and is the only state that has a licensing system for brokers, although the ACT also requires brokers to have licences.

The immediate impact on financial planners in WA is they cannot sell mortgages — including reverse mortgages unless they hold a licence.

The requirements for a WA mortgage licence consists of a mixture of theory and on-the-job training.

Select Mortgages general manager Jeff Rimmer, who is also the WA vice-president of the Mortgage Industry Association of Australia (MIAA), says the theory requires the applicant to have a Certificate Four in banking and finance and three modules in basic real estate law and chattel finance.

“Once the applicant has passed in these subjects they can apply for a licence,” he says.

Types of licences

There are three types of mortgage broker licence in Western Australia.

The first licence was for brokers dealing in private mortgage broking.

Rimmer says initially every mortgage broker had one of these licences, but most now apply for the restricted finance brokers licence.

“The old private mortgage licence is no longer relevant to the industry and is now limited to a handful of licence holders,” he says.

The restricted mortgage brokers licence covers brokers dealing with the traditional branded mortgage products that are available from a variety of well-known lenders.

This is now the most common type of licence held by brokers in the state.

The third licence can be described as a probationary licence.

The applicant has to study all the subjects for the theory, but if they have no practical experience in mortgage broking they are granted a probationary licence.

This means they have to work with a full licence holder to gain practical experience for a varying period of time.

The full licence holder is the mentor and Rimmer says acting in this role can create risk for the broker.

“Your own licence is at risk because if the probationary licence holder does something wrong, you are also responsible as the supervising broker,” he says.

Subject to completing the probationary period, the trainee broker moves to holding a full licence.

Financial planners seeking a mortgage licence often end up with the probationary licence first because of their lack of hands-on experience in the industry.

Broker requirements

Rimmer says the new licence holder has also to provide details of professional indemnity cover to the Western Australian State Government that regulates licences.

“The applicant also has to be a member of a complaints resolution scheme and, for some reason, put an advertisement in the WA newspapers saying they are applying for a licence,” he says.

“The application for a licence generally takes about a month before it is issued.

“It is an onerous process, but that is the way the mortgage broking industry here likes it.”

The MIAA supports the process in WA and argues it has weeded out the more disreputable people in the industry.

However, Rimmer says there has been criticism about the number of prosecutions and, in many cases, the weak penalties.

“While the scheme has worked well, we feel there could have been more prosecutions,” he says.

“However, we do see mortgage broking licensing as a positive thing.”

Financial advisers

Financial planners in Western Australia who do not have a licence have to refer the mortgage part of their business to brokers, Rimmer says.

“However, in recent times more financial planners are getting their own licences or hiring a licensed broker to work in the practice.”

One financial planner that is in the final stages of securing what will be a probationary licence is Marie White from the Sovereign Bridge Capital Group.

“We have used an external mortgage broker for years,” she says. “But we found it was not very efficient as there was a lot of cross over between our two roles with the client.”

White says by holding their own mortgage brokers licence, the practice can now deliver a complete process for the client in-house.

While a lot of the theory for the licence was already covered by the DFP and Financial Services Reform Act (FSRA) requirements, the practice still had to complete a number of the subjects again for the mortgage brokers licence.

“As a result, getting the licence is not proving as quick and simple as I thought it would be,” White says.

Rimmer says there is still a lot of study for financial planners, especially in areas such as real estate law, but prior learning experience will be taken into consideration.

“We don’t have a problem with the theory requirements and that some financial planners will get credits for this,” he says.

Practical experience

White’s practice has sent its production manager to be the mortgage broker licence holder and she will now have to get practical experience with another broker.

“She is now qualified, but doesn’t have the experience so cannot hold a full licence yet,” White says.

When Sovereign is licensed, it will offer all types of mortgages, including reverse mortgages. The practice is expected to select half a dozen mortgage providers and will not accept commissions.

“We have been a fee-for service practice since 1988,” White says.

Rimmer says most mortgage brokers in Western Australia declare their commissions from the product providers. They also declare any commissions from real estate agents for referrals.

A finance broker code of conduct is being developed that Rimmer says will be implemented very shortly.