Financial Services face-off - Australian Broker (3 April 2013)

The great debate between brokers and financial planners has been ignited again

For two industries that often work in close concert, brokers and planners often find themselves at odds philosophically. With the continuing convergence of financial services, mortgage broking and financial planning are becoming more closely aligned. But far from declaring a truce, the debate still rages in the industry as to who is better positioned to serve which aspects of clients' financial needs. MGF Consulting Group analyst Max Franchitto is no stranger to the debate. He's instigated it himself more than a few times. And Franchitto has stepped back into the fray, saying that planners are set to make more aggressive moves into the broker realm. "We are advising many financial planning firms to seriously consider buying a mortgage book of business and integrating it as a service, as FPs may be better equipped to advise on debt management." Franchitto said it's an "obvious fit" for a financial planner or independent financial adviser to be overseeing the debt management on the client's balance sheet, particularly with the advent of SMSF and other investment vehicles. "The financial planner is somewhat better informed on how to optimise that debt management."

Spread too thin

AFG general manager, sales and operations, Mark Hewitt, agrees in principle that brokers and planners should be closely aligned. He said it makes sense for a business to be able to offer its clients access to a mortgage specialist and a financial planner under the one roof. However, he's concerned individuals who try to diversify their offerings too much risk spreading themselves thin. "Our view is that it takes an exceptional operator to maximise the opportunities available across multiple disciplines, eg planning and mortgages, and that professionals who attempt this risk becoming a jack of all trades and a master of none." Franchitto agrees that having brokers and advisers under the same roof can be a viable alternative. "Either strategy is OK - it all depends on the best possible position for the firm. Owning the mortgage business is always a good advice quality-control strategy." But Franchitto goes a step further, implying that planners may be best suited to take on the role of broker part and parcel. "Let's just say that the entry point for mortgage broking is still considerably lower than financial planning even though I am seeing some encouraging improvement in professional development."

"I think (brokers) are better suited and better qualified to take up that role that (financial planners) have been ignoring for the last decade - Tim Brown"

Broker superiority

Most in the mortgage broking industry would disagree vehemently, and Vow Financial CEO Tim Brown is no exception. The aggregator runs its own wealth management arm, but rather than seeing advisers move into a mortgage broking role, Brown said he sees the flow moving the opposite direction. "I think brokers actually have a great opportunity to move into, in particular, life and super, which is the traditional role of a financial planner. I think financial planners over the last decade really ruled that space and they haven't done a very good job of servicing their clients in that space." Brown says many financial planners have gotten tied up in equities and investments and argues that there have been 'issues' throughout the network where financial planning groups are now being sued for giving poor investment advice. He says countries where brokers have already started to take over certain areas of the financial planning industry, including New Zealand and the UK, have proven successful and says getting Australian brokers to move into offering financial planning advice shouldn't be difficult."When you look at financial planning, there are two levels of financial planning education: there's RG146, which allows you to sell life, risk and comment on super and then you've got the full financial planning diploma which allows you to do estate planning, equities investments,derivatives - I don't think brokers want to get into that space anyway." For a broker to get educated to the correct level, he says, would mean getting their RG146, "and that's only a year's education. That's not much more than what they have to do to get their diploma for mortgage lending." Brown says 'smarter' brokers are already doing 75-80% of a statement of advice once they've completed a loan application anyway. "The other 25% for a statement of advice is about the client's risk appetite and also understanding what their current coverages are in terms of life, risk and super and I think most brokers are doing that," Brown said. "I actually think it's the other way. I think it really should come from brokers into financial planning, because I think (brokers) are better suited and better qualified to take up that role that (financial planners) have been ignoring for the last decade, which is just making sure customers have the right coverage on their assets and liabilities."

"The entry point for mortgage broking is still considerably lower than financial planning - Max Franchitto"