Horizontal integration between financial advice and mortgage broking businesses has reintroduced five forms of conflicted remuneration that were recently banned with the move labelled a ‘deliberate' exploitation of a legislative loop hole.
Michael Lee, founder of flongle – an online mortage contest and matching platform, said current forms of mortgage broker remuneration were similar to those banned under the Future of Financial Advice (FOFA) legislation and included up-front commissions, trail commissions, soft-dollar incentives, volume bonuses and rewards for achieving sales targets.
Lee said these forms of conflicted remuneration now sat alongside financial planning advice in groups which have horizontally integrated with consumers unlikely to realise that mortgage advice and financial planning advice and the remuneration for each operated under separate regimes.
He said it was unreasonable for consumers to receive best interest advice from one part of an integrated business "and not be safe in expecting the same standard of professional care when dealing with its mortgage advice department".
His comments were part of a submission to the Financial System Inquiry (FSI) in which he stated that it made sense to retain two separate legislative regimes for credit and financial advice.
However horizontal integration between financial advice and mortgage broking business "defies the spirit of FOFA, the best interests of the consumer and harms current progress toward the development of professional advice sectors for both financial advice and mortgage advice".
Lee also stated that financial planning advice sector had made good progress in building consumer trust and their role as professional advisers instead of sales people.
"Conversely, the mortgage industry continues to operate a substantially conflicted product sales model in which it is virtually impossible to prioritise the interests of the client above their own," Lee said.
He called on the FSI to consider extending the ban on conflicted remuneration to any Australian Financial Services Licensee or representative regardless of the type of product they are recommending.
