Best interest duty set to increase documentation for industry
A bigger focus on documenting client interactions will be key for mortgage brokers once the Best Interest Duty rolls comes into effect.
In January this year, ASIC began its four-week consultation on the Best Interests Duty Bill for mortgage brokers, and has since been green-lighted by the government. It will require mortgage brokers to act in the best interests of consumers and to prioritise a client’s interests when providing credit assistance.
CEO of Mortgage Choice, Susan Mitchell said the bill is “just to refine what the broker is actually already doing for the customer.”
Mitchell said the draft laws dealing with brokers misconduct and reference checking has yet to be fully realised.
Mitchell said the current remuneration changes weren’t “really changes” as they were set in motion by ASIC in March 2017, prior to the Royal Commission and only now put into law.
However, Mitchell did state possible negative outcomes could come in the form of high fines since the Best Interest Duty is still being developed.
“The BID is still rolling out and has the potential to be quite serious as the fines are enormous. I believe most brokers already act in their clients best interest but it the documentation of the activities that will be key.
“If it isn't documented, the broker will not be able to prove what his or her actions were years later.
“This added compliance burden will surely expand the amount of time it takes to complete an application,” said Mitchell.
The handling of broker misconduct, which ASIC is still yet to finalise how this will work, will be the bigger disruptor to the industry.
Being able to prove why a broker chose a particular product for a client should be the main focus added Mitchell.
“Those are going to be a bigger change than the best interests duty because a lot of the best interest duty will require a lot of the heavy lifting and this is going to come from the IT apartments.
“How you document and what you do, they're going to have to do a whole lot of work for the next six months to get that to work."
Mitchell added she didn’t think it has been thought out as to how that will reflect best results for the consumer.
“I think it has the potential to be much more significant than the way the industry is structured and what happens to the industry and the documentation of what the good brokers are already doing.”
Mitchell said “tougher licensing is coming for brokers and advisers” through stronger breach reporting and stricter reference rules at the time a broker starts with a group.
“The advisers also have had their education requirements increased which will force many advisers from the market. These came in January 2019.”
General manager of technology for Connective Broker Services, John Meadows added the changes will be good for the industry stating despite the good actions of many, there are still those that abuse the system.
Having an effective system in place will create a securer space for both consumer and broker said Meadows.
“One thing that we're looking at doing with our platform is making make it much easier and efficient for brokers to tag the documents and the evidence, all the conversations that they're having with their clients.
“So that when they do need to pull that together for supporting documentation, it is really is a very efficient program for them.”
CEO of HashChing, Arun Maharaj said there are new technology advancements aimed at helping keep broker documentation up to date.
“It's very important. What we've done for brokers using our platform is we've introduced an automated fact-finder.
“It's done by SMS for our consumers, brokers and the system updated automatically.
“What happens is everything's documented. It's all about documentation from the start. The broker can basically fix the questions, the system updates itself and it's all real time. The consumer can see the answers and see the file updates.
“I think that is it is very important for this industry,” Maharaj said.