Buying your first house: Financial adviser vs direct to bank

Buying a house is all about decisions. 

Which neighbourhood should you buy in? Are you ready to buy with your partner? Are you looking for something move-in ready or a fixer-upper? Are you really ready to give up avocado on toast for this dream? (kidding…mostly). 

One of those decisions is whether to ask a financial adviser for mortgage advice, or to go directly to the bank. And considering it’s your first rodeo, it may be best to ask around before making that particular decision. 

So we’ve asked for some advice from Jessica Ford, who is the Director and Financial Adviser at Home Loan Studio. You’ll find her sage advice and knowledge throughout this blog. 

What is a financial adviser?

A financial adviser is someone who offers professional advice for your financial goals and needs. While they can help with a range of financial needs such as saving for retirement or making investments, they can also help you determine the best mortgage approach for your situation. 

For example, they might offer advice on whether to split your mortgage between fixed and floating interest rates, which loan provider to use, and how to manage payments. They can also advise you on how to pay down the loan faster, reduce your interest costs, or adjust your mortgage to reflect changes in your life situation over the years (such as a new baby in the mix, or a promotion allowing you to make higher payments).  

Once upon a time, financial advisers were known as mortgage brokers – until new legislation changed the name. 

Roles and responsibilities of financial advisers

Not just anyone can be a financial adviser. This is a role regulated by the Financial Markets Authority (FMA, and one that comes with a number of responsibilities). 

Firstly, financial advisers are bound by the Code of Professional Conduct for Financial Advice Services. This code sets standards of competence, conduct, and client care, which requires advisers to comply with the prescribed standards of ethical behaviour and meet standards of competence, knowledge and skill (including any continuing professional development requirements)

• Financial advisers also must look after you as long as you’re a client, and at a minimum get in touch annually to check that the advice that they’ve given you remains appropriate. They’ll have all your information previously provided to them on file so you won’t need to rehash everything, but it’s important to update them of any changes so they can make sure your lending remains appropriate. 

Advantages of using a financial adviser

Jessica Ford outlines five key advantages of using a financial adviser:

• Better Outcomes: “Advisers are better at securing favourable outcomes, such as maximising the amount you can borrow, minimising interest costs and reducing fees as they have a much wider range of options to choose from and help you with.“
• Expertise and Experience: “Advisers typically have more expertise and experience than bank staff. Advisers are required by law to give you what’s called a disclosure statement to help you decide whether or not you’d like to work with them. Among other things, it will tell you that person’s experience and qualifications, the banks that they work with and how they are paid. In my experience, the average tenure in the industry with time spent lending and managing client relationships, along with that person’s Google reviews, is your best indication of the kind of advice and support you’ll be likely to get.”
• Access to better networks: “Advisers are generally better at cultivating networks as that’s a big part of how they get business. When you need a recommendation for a particular service (risk advice, conveyancing, setting up wills or EPOA, building inspection, valuers, specialist services i.e. plaster houses, trust advice, tax and accounting advice) then an adviser is likely to have a good network of professionals they can recommend to you.”
• Multiple Lender Options: “Advisers have access to multiple lenders, including second-tier lenders for those with bad credit, self-employed individuals, or those who don't fit the main banks' criteria. When you present your application an adviser will know, based on your age, how you earn your income, your household makeup (how many adults, how many dependants), your budget, your current debt levels and what you are trying to achieve, which providers are going to have the most favourable criteria for your situation.”
• Comprehensive Support: “Brokers assist with not only the lending approval, but they can act as your guide giving you background about what to look out for when purchasing. They’ll talk you through various aspects such as property types and what can be lent against different types of property, title types, ownership methods, deposit solutions, and ways to minimise fees and interest.”

Disadvantages of using a financial adviser

While Jessica makes five excellent points about the advantages of using a financial adviser, she also transparently offers some of the potential drawbacks (although, there are only three of these!). 

• Potential Fees: “Some advisers may charge a fee if they are not compensated by the bank. They will disclose this upfront. In most instances an adviser would be compensated by the lender that you go with so there are no fees payable. Plenty of advisers never charge a fee regardless of whether they get paid or not but it does pay to check this first.”
• Clawback Costs: “If you repay your loan within a specific period, your adviser might incur a clawback fee from your bank, which some advisers may partially or fully pass on to you. This will also be disclosed by the adviser prior to you using their services. Again it pays to ask questions and make sure you understand prior to engaging with that person.”
• Impartial advice: “Many people say you’re not getting impartial advice with an adviser because we are paid by the banks or providers that you take lending out with. However, we are required by law to act in a client’s best interests at all times and we must disclose any potential conflict of interests prior to being engaged by a client. At any stage, any client can complain about the advice they receive if they don’t believe it was in their best interests, and we can be audited by the FMA.”

Roles and services provided by banks

Banks also offer financial advice, including on how to get, manage, and pay off a mortgage. This includes facilitating lending approval and setting up your account.

As such, they are covered by the same financial services legislation. And in fact, when you deal with bank staff, they can sometimes be financial advisers. 

Advantages of working directly with a bank

The advantages of working with a bank generally boil down to them being quick and easy. 

As Jessica puts it, “If you get someone with their own lending discretion, a knowledgeable bank staff member might expedite the process for straightforward loan applications.”

She went on to explain how a recent client got immediate mortgage approval with their own bank, however, Jessica was able to find a much better package elsewhere with a little more time. 

Another benefit is that of simplicity. If you bank with a single institution, they might already have everything they need for a simple and straight-forward mortgage application. 

Finally, banks can offer ease of access, says Jessica. “Less tech-savvy consumers might find it easier to work directly with a bank since they may lack the networks or IT literacy to work with a broker.”

Disadvantages of working directly with a bank

Every silver lining has its cloud, so here are a few of the potential downsides you might find with a bank. 

Firstly, you might not get a long-term relationship with bank staff. As Jessica explains, “good bank staff, particularly within retail divisions often get promoted or move on, making it unlikely for you to have a long-term relationship.”

A more pressing downside is that bank staff can’t offer the same impartiality as an independent adviser. They can only offer advice about their own rates, products, and pricing. This also means fewer options, so you might not get the best product for your needs. 

Finally, Jessica highlights a lesser-known downside of working with banks – investor limitations. 

“Investors may benefit from using multiple banks to control repayment of funds when selling properties. A single bank will cross-securitise all lending, which can mean less flexibility with how proceeds of sale are distributed and can cause big headaches when selling a property,” she explained. 

Making the decision

Just like deciding what colour to paint the walls in your new home, choosing between a financial adviser and a bank is entirely up to you. Unlike painting the walls mustard yellow, this decision could either save or cost you in the long run – so it’s best to carefully consider those options before diving in.

There can be a lot of hard decisions to face when thinking about the future and your finances, but finding the right life insurance policy can be simple. Explore OneChoice Life Insurance and request a quote today. 

4 Nov 2024