Merging financial and home loan advice regimes ‘eminently sensible’: Michelle Levy

Speaking at a new year event hosted by PritchittBland Communications in Sydney on Tuesday night (31 January), Michelle Levy, a partner at Sydney-based law firm Allens, was asked to share insights into her experience leading the Quality of Advice Review (QAR).

After delivering a speech outlining that the financial services regimes may have become overly prescriptive, Ms Levy was asked for her thoughts on whether wealth advice should include mortgage debt/home equity.

In response, the Allens partner said: “The review is quality of advice — financial advice — but what it actually means [was] financial product advice,” Ms Levy stated.

“I discussed this with Treasury because financial advice is much, much broader than financial product advice.”

While the terms of reference for the QAR do not specifically address bringing together corporations law and consumer credit law, Ms Levy told delegates: “I think it’s a crazy world where you can go and see a financial adviser [and]  they can talk to [you] about your home because it’s not a financial product, but they can’t talk to you about debt, for example, without also being licenced under an ACL.

“In my view, it should all be together,” she said.

Ms Levy highlighted that the Financial Services Reform laws (brought in 20 years ago) were meant to provide an “overarching regime that applied to all providers of financial services”, but noted that there are now multiple regimes and obligations spanning financial services providers.

“Even a single provider — like a bank is a very good example — [now] has two sets of obligations,” she said.

“Then you’ve got mortgage brokers on the one hand with one set [of] obligations and financial advisers on the other with different obligations … 

“So it’s a bit of a bad regime [in my view], to have them all separated,” Ms Levy continued.

“Homes form part of wealth; they should be capable of being integrated into the advice that people seek,” she challenged.

Ms Levy later emphasised to ifa’s sister brand, The Adviser, that while merging financial advice and credit advice regimes was not in the QAR terms of reference, she said: “I think it would be eminently sensible to do that, for what it’s worth …

“If I were all of you, I would be lobbying for it because it’s a bit of a crazy regime, and they have come together a lot,” she continued.

“You’ve got the Best Interests Duty now for mortgage brokers, which looks a bit like (but not wholly like), the Best Interests Duty that applies to financial advisers.

“You’ve got DDO that applies to credit products as well as financial products, so … all are exceptions now that are already muddying these separate regimes,” she reiterated to The Adviser.

The Financial Planning Association (FPA) has previously backed calls for financial planners to provide credit advice — but it said that changes needed to be made to ensure that the sector is not “tainted” by the issues associated with brokers.

Should mortgage brokers and financial planners be regulated the same?

Ms Levy’s comments echo some of the recommendations put forward by commissioner Kenneth Hayne in his final report for the banking royal commission.

Writing in his 2019 report, commissioner Kenneth Hayne said: “Why not regulate mortgage brokers in precisely the same way as any other person who is to provide personal advice to a retail client?”

“Why not treat mortgage brokers as financial advisers?

“I know that doing this would bring with it the requirement to provide written statements of advice. I know that it would bring with it the educational requirements expected of other financial advisers.

"But what reasonable answer can be given to the observation that the special and distinct treatment of mortgage brokers is no more than yet another carve-out from, or exception to, generally applicable rules stated in the law because they are seen as necessary to the proper conduct of provision of financial services in Australia?

“None is evident to me,” he concluded.

“I consider that after a sufficient period of transition, mortgage brokers should be subject to and regulated by the law that applies to entities providing financial product advice to retail clients,” the report read.