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Allowing financial planners to offer credit advice would provide consumers with greater choice, drive innovation and reduce financial costs, according to the Productivity Commission.
In its final report, released to the public on 3 August, the Productivity Commission (PC) called on the Australian Securities and Investments Commission (ASIC) to consider implementing a new Australian Financial Services Licence (AFSL) that would provide financial planners with access to the credit space.
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“ASIC should assess the feasibility of financial advisers providing advice on home loans and other credit products via a new Australian Financial Services Licence that would not require a separate Australian Credit Licence to be obtained,” the commission said.
The PC contended that extending credit advice to financial planners would:
- provide greater choice, time-saving and more holistic advice for consumers;
- drive business and service innovation; and
- reduce financial costs involved in applying for two separate licences (AFSL and ACL).
The PC added: “A recommendation to allow financial advisers to advise on home loan and credit products should, therefore, be seen as forward-looking.”
However, the commission claimed that the nature of credit advice provided by financial planners would differ from that provided by mortgage brokers.
“We envisage that the role of financial advisers in the credit space would most likely be focused on providing holistic advice to customers, rather than the often administrative services, such as completing the loan application process, currently associated with mortgage brokers,” the PC said.
The commission also made note of the differing remuneration models of the two industries, claiming that the fees-for-service model of the financial planning sector would be “broadly uncompetitive with other providers, such as mortgage brokers and bank employees, who can offer a free service and receive commission from the lender”.
The PC continued: “Financial advisers may be competitive in situations where the advice on credit products is part of a broader financial advice package. In this sense, they are only likely to appeal to a (possibly small) set of existing customers of mortgage brokers.
“However, the depth of demand for holistic advice — and customers’ willingness to pay for it — is best tested by the market, not regulatory exclusion.”
However, the PC also disputed contentions by some industry stakeholders, including the Finance Brokers Association of Australia (FBAA) and the Mortgage and Finance Association of Australia (MFAA), concerning the “perception that the two industries are fundamentally different”.
In its submission to the PC, the FBAA noted: “If a financial adviser wishes to advise on credit products now, they must obtain an Australian Credit Licence or be appointed as a representative of an ACL holder.
“If they want to give credit assistance in relation to third-party home loans, then they must hold the relevant qualification and undertake 20 hours relevant CPD each year. We see no reason why there is a need to grant any dispensation to anyone from complying with these obligations and there is no reason to attempt to duplicate these obligations in the Corporations Act.
“While there are many similarities and some overlap, there are significant differences between the credit legislation and financial services legislation and anyone wishing to practice in both fields must be cognizant of both.”
Further, the MFAA submitted: “[We] note the significant difference between these disciplines. Under the current arrangement, a business providing financial and credit services must hold both a licence/authorisation under the Australian Financial Service Licence (AFSL) regime and the Australian Credit Licence (ACL) regime.”
However, the PC claimed that it does not see a “fundamental difference”, adding that “any differences would be increasingly manageable”.
“On face value, we do not see a fundamental difference in the skills set required,” the commission said.
“Furthermore, with scope for online tools that guide and facilitate timely updates in product features and comparisons, any differences are seen to be increasingly manageable. Nevertheless, ASIC should undertake further consultation with the industry to determine the merits of these claims.”
In its assessment of the proposed reform, the PC concluded that the “question of conflicted remuneration needs to be dealt with, if this new licence is to be effective”, and called for the appointment of a principal integrity officer (PIO) in each ADI to ensure that lenders comply with the remuneration standards of the broking and advice industries.
“Appointing a PIO in each ADI will help align the remuneration standards for financial advisers and mortgage brokers, lowering barriers to financial advisers being able to effectively compete through a new, broader financial service licence,” the commission said.
[Related: PC calls for ‘integrity officer’ to monitor commission payments]
