Partners in property

The mortgage industry represents the fastest-growing sector in Australia, substantially overlapping the financial services environment, yet dealer groups and individual financial planners are only now beginning to formally leverage the opportunities available to them.

While the US mortgage industry boasts high levels of referrals from accountants and financial planners, most referrals in Australia come from real estate agents.

This is something that surprises Greg Walters, the principal of Brisbane-based mortgage aggregator, Loan Vision, who believes Australian financial planners are ignoring a considerable revenue stream.

The size of that revenue stream is indicated by Walters’ acknowledgement that his firm offers a 40 per cent upfront commission plus 40 per cent trailing arrangement to referring financial planners, increasing to 45 per cent plus 45 per cent for major dealer groups.

Walters, who boasts more than 20 years’ experience in the US mortgage industry environment, believes there is considerable scope for financial planners and dealer groups to work with companies such as his own to broaden their offering to clients.

It is a sentiment echoed by David Butcher, a former chief executive of theFinancial Planning Association(FPA) and now a director of the soon to be launched advisory firm, Mortgage Maze.

Butcher has a very different perspective to Walters. He sees the key issue in the relationship between financial planners and mortgage brokers as being ‘ownership of the client’.

His view is based on financial planners’ past experience with other professional groups, such as lawyers and accountants, where ownership of the client has been lost.

“That is why positioning is very important,” he says. “Financial planners have to maintain ownership of the client.”

The ability of financial planners to retain ‘ownership’ of the client is not an issue for Lawfund, the finance broking company set up by the legal profession to help clients with finance.

These days, Lawfund has moved beyond a strictly legal clientele to also provide services to accountants and some financial planners and, according to director Sal Carrero, it represents a partnership arrangement.

He says that when Lawfund approaches accountants or financial planners, “we promote ourselves as their mortgage broking arm”.

What is more, Carrero says Lawfund’s mobile lenders are paid on a flat fee basis and are prohibited from marketing to referred clients — something which should give comfort to financial planners concerned about ‘ownership’.

Carrero understands the sensitivities of financial planners, having spent some time as a planner with Lend Lease, and it is a measure of the way in which he sees the mortgage sector evolving that Lawfund is currently negotiating to take equity in a relatively new, but significant Sydney-based dealer group.

He says that, moving forward, it will be important for mortgage brokers to become as Financial Services Reform Act (FSRA) compliant as possible.

Walters recognises the problem of client ‘ownership’ for financial planners but argues that they can’t afford to be too precious in circumstances where their failure to establish relationships in the mortgage industry carries with it the risk that they will lose their clients to the banks.

“And the banks have a mandate to sell two, three or four times to clients, so planners will want to be sure they have a pretty solid hold before they allow that to happen,” he says.

Butcher agrees with Walters that the mortgage broking industry is in its infancy and that sizeable opportunities exist, but he warns that the nature of the mortgage sector is such that planners should seek to deal only with members of the Mortgage Industry Association of Australia (MIAA) because of the requirements the MIAA imposes on its members — the need for experience, professional indemnity insurance and so forth.

“The mortgage broking industry is very similar to financial planning five years ago — high growth and driven by commissions. With the exception of Western Australia there is no licensing system,” he says.

Butcher further maintains that the degree to which financial planners will want to establish relationships with mortgage brokers will depend on the profile of their client base.

“It is unlikely that mature age high-net-worth individuals will be interested, but younger high-net-worth individuals certainly will be,” he says.

“If you adopt a holistic approach then there are opportunities as a financial planner where you have a high-net-worth client with a large mortgage and, say, some investment properties to restructure that arrangement,” Butcher says.

Looking at the obvious synergies, he says mortgage brokers are ready to enter into relationships with financial planners but he doesn’t know of any that really understand financial planning.

Chief executive of the MIAA Phil Naylor acknowledges the growing importance of the FSRA to mortgage brokers and points to the fact that the MIAA has been pursuing a uniform regulatory environment across all states and territories.

He says the desire of some mortgage broking companies to extend their offering might see the evolution of two different streams — those that want to maintain a pure mortgage broking business and those that, in partnership or otherwise, operate within the ambit of the FSRA.

Walters describes the industry in Australia as “an area that financial planners have walked past; another income source in circumstances when, at almost any given time, most of their clients would be doing a loan.

“I don’t understand why it isn’t a part of what financial advisers do, particularly given the amount of revenue involved,” he says.

“Part of the struggle is getting dealer groups and financial advisers to recognise the opportunities that exist.”

He says that given the size and strength of dealer groups, there is a capacity to take the function in-house but this raises questions about how they maintain compliance with financial services regulations.

“We recognised the importance of FSR, so we’re geared to help dealer groups and advisers remain compliant.”

On the clearly contentious question of who, ultimately, owns the client, Walters insists that financial advisers need to be pragmatic.

“They need to recognise that if they sit back and do nothing, there’s a better than 70 per cent chance that the banks will end up with the client,” he says.