Planners vulnerable to new credit regime

Financial planners are at risk of being unintentionally caught out under the new credit licensing regime, according to Gold Seal Risk Management Services managing director Clair Wivell Plater.

Wivell Plater, who hosted a compliance workshop at the Financial Planning Association national conference on the Gold Coast, said a person was providing a credit service when they suggested a client apply for a loan, apply for a credit increase on an existing loan, or retain an existing loan — all of which applied to consumer credit. However, in terms of general financial advice, there is a fine line as to whether a financial planner required a licence or not.

An example she gave of peculiarities in the new licensing regime was that of financial planners requiring a credit licence to advise on investing in residential property. However, a loan for investment purposes, including a home equity loan, or to purchase commercial property, was not considered consumer credit.

Wivell Plater added that financial planners also had to be careful about the language they used in their Statements of Advice to avoid being caught under the credit legislation. For example, she said in terms of a financial plan, the adviser could ‘assume’ that the client’s existing home loan would remain in place and not require a credit licence. However, they would be providing credit advice if they ‘recommended’ that the client keep their existing home loan.

Because of such peculiarities in the law, Wivell Plater said many planners were getting a credit licence anyway to avoid penalties by unintentionally giving credit advice without a licence, which she said was not an onerous or costly process. However, she warned that there were further difficulties planners may have to face. She said in order to become a credit licence responsible manager, one was required to have Certification IV in Financial Planning (Mortgage Broking) as well as two years problem-free mortgage broking experience.

As financial planners were not mortgage brokers, this potentially caused confusion. Wivell Plater said the Australian Securities and Investments Commission clarified that all financial planner had to do was explain what debt advice was given, even if they did not give a full mortgage broking service that encompassed actually arranging a loan.

Another difficulty encountered was in getting the required confirmation from the professional indemnity insurer that the financial planning coverage included debt advice.