At the same time as the mortgage broking industry has established a forum to deal with remuneration issues, a key actuarial consultancy has argued that mortgage brokers should be subject to much the same requirements as financial planners including ‘know your clients’ and a ban on commissions.
The consultancy also wants mortgages deemed as financial products in terms of the Corporations Act.
The Minister for Revenue and Financial Services, Kelly O’Dwyer welcomed the mortgage industry’s creation of a forum to develop an industry led response to the Australian Securities and Investments Commission’s (ASIC’s) review of mortgage broker remuneration but pointed to the Treasury’s review process of the situation.
As part of that Treasury review process, actuarial consultancy, Rice Warner filed a submission in which it argued that there was a need inject a need for “appropriate advice” into the equation in circumstances where mortgages could not be deemed “simplistic consumer products”
“In conjunction with their collateral asset, mortgages are equivalent to other long-term investments and require equivalent advice especially in relation to long term risks,” it said. “Mortgages are not simple consumer credit products.”
“We believe that the lack of formal ‘know your client’ obligations that properly recognise the long-term nature of mortgages is a deficiency that should be remedied. Mortgages are long-term financial commitments that impact on all other long term financial plans and need to be recognised as such.”
The Rice Warner submission said advice regarding the type, structure and term of a mortgage needed to recognise the other long term financial commitments and aspirations.
“This is especially the case where the mortgage is used to provide gearing for further investment. To do otherwise would be a failure to serve clients’ best interests,” the submission said. “We consider that consumers’ interests would be best served by reclassifying mortgages as financial products in terms of the Corporations Act. This would immediately and definitively address the issues related to the levels of remuneration and the conflicts of remuneration. “
The submission argued that such a move would also address the quality of advice, the qualifications of brokers, the oversight and disclosure regime, and the need to act in consumers’ best interests.