The mortgage broking sector
The issue in relation to mortgage broking is somewhat different. Mortgage brokers tend to have a wide variety of different products from a number of lenders. They are not as tied to a single provider as financial planners tend to be.
The real concern with mortgage broking is trying to find an alternative remuneration process that clients are willing to pay. The idea of paying upfront for such long-term advantage is likely to be a put off. However, the community would be worse off without mortgage brokers as they provide real choice to clients and often provide loans at lower rates and in less time than a person could on their own.
This is not to say there are no concerns with commissions in mortgage broking. The main concern with these commissions is that they may lead to brokers recommending clients take on excessive amounts of debt. If the mortgage broker is rewarded for putting clients into more debt it could lead to inappropriate recommendations leading people to borrow beyond their capacity to pay.
This is not merely a theoretical threat. In the US commissions on lending led to some advisers recommending clients take on excessive mortgage debt that in the end the clients were unable to afford. This not only affected the clients but has contributed to the underlying weakness of the US economy. Therefore, while commissions should not be banned at this stage, the Government should work with industry to try and find a method of remuneration that maintains competition within the mortgage broking sector but does not create a potential conflict to encourage excessive borrowing.
Accountants’ exemption
At the time of writing the IPA was still awaiting the Government’s decision on the accountants’ exemption. The IPA appreciates there is a lot of anxiety and anger in relation to the loss of this exemption and concern about what will replace it.
We have lobbied the Government on this issue for several years, together with the other accounting bodies. We know that when accountants talk about a self-managed superannuation fund (SMSF) they are generally talking about the trust structure, the tax issues and the administration and running of the fund. We believe that such issues relating to an SMSF are not – and should not be – covered by the financial services legislation.
Licensing debate
Unfortunately ASIC and the Government are adamant that an SMSF is a financial product and therefore you have to be licensed to advise in relation to it. This is like saying that a driving instructor must also be a qualified mechanic because a car is a mechanical device. Just as the driving instructor is only there to instruct on driving, not fix the car, so an accountant generally is there to help the client to set up an SMSF and deal with the administrative issues. The accountant is not there to give investment advice, unless they are licensed to do so. The Government is correct, however, to say that an SMSF should not be discussed in isolation from other superannuation. If someone is setting up an SMSF they are, in the vast majority of cases, moving funds from one superannuation fund to another. This is financial advice. There are consequences for the client in making such a switch. It is therefore important that when a client wants to set up an SMSF they receive advice about superannuation more broadly.
The adviser needs to be trained and knowledgeable in all areas of superannuation. And this is where the current exemption falls down. It has created a false barrier between SMSFs and other forms of superannuation. This leads to accountants either not giving proper advice because they cannot talk about other superannuation or to them breaking the law and advising on things they are legally not permitted to advise on.
This is the difficult position the accounting bodies have found ourselves in. The reality is accountants need to be able to talk about financial matters such as superannuation. We believe they should do so. We also believe there is a distinction between those who give pure advice and those who want to sell financial products.
While the Government agrees with this view the regulator considers there is only one licensing solution and everyone must come under the Australian Financial Services Licence framework. ASIC also points out that while accountants may be knowledgeable in aspects of superannuation many are not trained in providing financial advice and some have set up SMSFs with investments that breach the current SIS rules.
The issue has become one of how to bring accountantsinto the current structure. Our view is that there should be a distinction in the law between those who merely advise on financial matters and those who recommend and sell financial products. We believe the licensing requirements for those who give pure advice should have a more streamlined process with less onerous requirements. We believe accountants who are members of one of the professional bodies should be recognised as meeting most of the requirements and only have to prove they have been in practice for a period of time and are RG 146-compliant, in particular with respect to superannuation. If this can be done at minimal cost then it is what we have been calling for. But our concern is that the regulator will impose rigid rules and requirements that few would pass or will require thousands of dollars annually.
Help from the financial services platform
For this reason the IPA has developed its financial services platform. This offers a range of solutions to assist members with the outcomes from FoFA and also provides a means for members to get into financial planning either themselves or through their firm.
There is no solution that will suit all members. Members will need to analyse the kinds of clients they have and the services they provide now and into the future. They will need to decide which option suits them and their clients. And yes, it is going to cost and clients will have to pay for this advice. It is the price of having a self-managed superannuation fund.
