Has advice become a high-risk, low-profit business?

Mortgages and financial advice seemed to be the perfect match on paper, but the economic reality has proved to be very different.

Long before the royal commission, a handful of mortgage broking groups saw an opportunity in financial advice. Loan Market, Mortgage Choice and Yellow Brick Road (YBR) all offered, until recently, mortgage broking and wealth management services.

But running an AFSL has proved to be too difficult. Last year, Mortgage Choice made a business decision to exit financial planning as part of a program of work to focus and streamline the business ahead of its acquisition by REA Group.

Mortgage Choice Financial Planning has not had any financial advisers on its licence since March 2022.

Loan Market, the mortgage broking arm of real estate giant, Ray White, wound up the Wealth Market business in March. Chairman Sam White said he believes in financial advice for all Australians — “not just the wealthy”. Yet like Mortgage Choice, the group couldn’t see a viable business case for keeping Wealth Market going.

YBR got out of financial advice before Loan Market and Mortgage Choice. The group sold its advice business in early 2020.

YBR’s executive chairman, Mark Bouris, told ifa that in financial advice businesses, there are more people and cost in compliance than there is in marketing. He said he’s not surprised that mortgage groups have joined the banks in exiting advice. He expects to see more AFSLs exit the sector.

“There’s just not enough money in it for them,” he said. “It’s what I call profitless prosperity. It’s not only not viable, it’s a liability. Financial advice is a high-risk, low-return business.”

Mortgage Choice, Wealth Market and YBR all believe in financial advice. They see value in it. It just doesn’t make enough money.