One of the most challenging tasks facing mortgage brokers under the new best interest duty will be satisfying themselves that recommending from within their panel of lenders is in the consumer’s best interests. The issue got a workout at a parliamentary committee hearing yesterday.
The broker best interests regulatory guide ASIC released last week (RG 273) says: “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 question of just how this obligation will work in practice was up for discussion when mortgage broking industry representatives fronted the House of Representatives Standing Committee on Economics yesterday.
The chief executive of the Mortgage and Finance Association of Australia, Mike Felton, said he agreed with the principle, saying: “We think it is appropriate that if a broker does not have the right product then the broker cannot act in the borrower’s best interests.”
However, Felton also said the regulatory guide gives the broker discretion. “The broker best interests duty is an in-principle best interests duty. Best interests have to be looked at on a consumer by consumer basis.”
David Carson, regulatory compliance adviser at the Finance Brokers Association of Australia, said: “It is a best interests duty, not a best products duty. Our view is that there is rarely one best product. In aligning the customer’s preferences with a product, there is rarely one best product.
“The best interests duty ensures that the broker takes all information available to them and factors it into their advice.
“We recognise that there will be situations where brokers will decline to give advice. But there is usually a range of products that can be recommended.”
Carson said he did not agree with the proposition put by the committee deputy chair, Shadow Assistant Minister for Treasury and Charities Andrew Leigh, that brokers would be obliged to conduct extensive research of the loan market to be satisfied that they had met their obligations.
Carson said: “You have to align the customer’s preferences with a product but there is rarely one best product.”
The guidelines do not prescribe how many options should be presented to consumers. But ASIC says “some practices are not consistent with acting in the consumer’s best interests.”
It cites consumer research which shows that 58 per cent of consumers receive only one or two loan options.
It says: “We consider it is important that consumers are presented with options and understand why the options presented to them have been selected and why a particular option has been recommended to them.”
The broker must act in the best interests of the consumer not only in relation to the mortgage but also in relation to any other credit contracts for which they provide credit assistance. These might include credit cards and personal loans.
And brokers will be required to assess other credit products packaged with a home loan in meeting the new best interests duty.