New Rules Mean Brokers Have to Work in Client’s Best Interest
ASIC has confirmed brokers will be obliged to act in the best interests of borrowers by 2021.
Under the new rules, mortgage brokers will be required to thoroughly investigate a client’s circumstances, keep detailed notes of client meetings and the advice given, and consider carefully whether any cash back offers banks may offer represent value for money.
ASIC’s views on how mortgage brokers may comply with their best interests obligations at key stages of the credit assistance process. It provides guidance on:
- the effect of the range of credit providers and products brokers can access
- recommending packages of credit products
- the types of records that may be kept to demonstrate compliance
“These are important and timely reforms for the mortgage broking industry and for customers shopping for a loan,” said ASIC Commissioner Sean Hughes.
“This reform was legislated by the Parliament to improve the quality of credit assistance provided to consumers. ASIC supports that objective.
“Consumers rightly expect mortgage brokers to act in their best interests and ASIC’s guidance describes how we expect them to do so. Under these new obligations, let there be no doubt – the consumer must always come first.”
ASIC commissioner Sean Hughes said the guidance was even more important in the present environment where banks and other lenders were competing aggressively on price.
“In a low-cost borrowing environment this guidance says you need to present a range of options to the customer and you need to make sure your advice is in the best interest of the customer and there are no other factors influencing your recommendation” Mr Hughes said.
Mr Hughes said the regulator believed pricing was the among the most important aspects of any loan agreement and that brokers would be obliged to provide the lowest cost options to a borrower in order to discharge their duties properly.
But MFAA CEO Mike Felton says there is more to mortgage broking than simply finding the lowest rate on offer.
“Urgency of approval and the customer’s credit profile can also be important factors when assessing the appropriateness of a lender and product,” Mr Felton said.
Following the draft released in February, which contained 15 worked examples, the final version contains another four examples as well as advice about cash back offers which have become prominent as banks compete for high-quality borrowers.
ASIC is understood to be concerned that while the offers of up to $2000 are being marketed as windfalls for the customer, they are often just enough to cover the cost of switching to another lender.
The new document also contains guidance for brokers who only have access to a limited number of products, saying the broker is now obliged to inform the customer if they are not accredited to sell a product that is more suitable.
“If you are not satisfied that the products and credit providers you can access and recommend will allow you to act in a consumer’s best interests, you must not provide credit assistance to that consumer,” the guidance reads.
Under the new laws, mortgage brokers will be required to keep detailed records for each client including a copy of the responsible lending assessment, a copy of the credit guide given to the client, information about the customer collected as part of the application and outcomes of applications.
Brokers will also need to record details of each conversation had with the customer, information showing how the broker acted in the best interests of the customer, the options and ultimate recommendation provided as well as any conflicts that arose and how they were mitigated.