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The creator of a new product combining a residential mortgage with an investment has said brokers will need innovative products as a point of differentiation.
WealthMaker Financial Services managing director Michael McAlary has told Australian Broker the convergence of financial services will see consumers looking not only looking for service propositions that meet the broad range of their financial needs, but also looking for products that address both sides of the balance sheet.
"There is a convergence going on between investment and lending," he said.
With this in mind, McAlary said, the company has launched a new product he says represents the convergence of lending and investing. The company's Aspire home loan functions as both a mortgage and investment product.
"What we do is, rather than putting all the principal component of the instalment toward paying down the loan, we divert 30% of that and put it in an investment. It allows the customer to invest while paying down their loan," he said.
#pb#According to McAlary, this means that, should the market perform at historical averages, the investment balance will outstrip the outstanding loan balance by year 22."At that point, they've made no extra payments but they've paid their house off eight years early. If they want to go to the end of the 30-year term, not only do they end up owning their house, they end up with a bucketload of investments," he said.
Should the market not perform, McAlary said the product contains gap protection to ensure that the loan term goes no more than 30 years.
McAlary touted the product as a way for brokers to differentiate their offering.
"The key thing is that there's no product differentiation out there. Everything is price driven," he said.
"Broker have been going through hard times over the last five years since the financial crisis. As a point of differentiation, brokers will need a product like this," McAlary added.
With the product merging investment and lending, McAlary said brokers recommending it would find it "in their interest to get someone with an AFSL to sign it off", but he said this created the opportunity for brokers to forge referral relationships.
"You've got brokers already sharing offices with planners, and some do currently refer business to each other. This sits neatly in that space," he said.
