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Mortgage website warns about mixing broking and planning

by Nick Bendel10 minute read
The Adviser

Firms that combine broking with planning are exploiting a legislative loophole to offer “conflicted remuneration”, according to one mortgage website.

Flongle, which acts as a middleman between borrowers and mortgage distributors, told the Financial System Inquiry that it is inconsistent for FOFA reforms to apply to the planners at one firm but not the brokers.

Flongle’s submission claimed that while planning had “made significant progress in regaining consumer trust”, broking “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”.

The convergence of broking and planning “defies the spirit of FOFA”, according to Flongle.


“It marks the deliberate reintroduction of conflicted remuneration into financial services through the exploitation of a small legislative loophole,” it said.

Flongle said most people don’t realise that mortgage products were excluded from the FOFA reforms.

“Notwithstanding, it is a somewhat confused message and an unreasonable expectation for a consumer to rely on independent advice in their best interest on one strain of product from one part of a business and not be safe in expecting the same standard of professional care when dealing with its mortgage advice department or the planners referral partner,” it said.

Flongle’s submission also said that broker remuneration is similar to the “conflicted remuneration” that planners received before FOFA.

“We respectfully suggest that it would be a missed opportunity if the inquiry did not in the very least consider extending the ban on conflicted remuneration to any AFS licensee or representative regardless of the type of product they are recommending,” Flongle said.

Finance Made Easy owner Tony Bice, who does both broking and planning, dismissed the idea that planning has a more ethical remuneration system than broking.

Mr Bice told The Adviser that it is logical to have different models, because advisers are paid by the client while brokers are paid by the lender.

He also noted that the NCCP holds brokers accountable just as FOFA does for planners.

“I restrict my financial planning to the two key areas that go hand in hand with the client taking out a mortgage: risk insurance and superannuation,” he said.

“I operate within FOFA for that part of financial planning, and then on the mortgage side I operate within NCCP with regards to providing the right advice for clients with a mortgage.”

[Related: Flongle will charge clients to see brokers]