Providing consumers with education around loan affordability and detailing how a product may or may not be suitable for their particular situation will form a key part of the new best interests duty legislation, according to PLAN CEO, Anja Pannek.
Speaking recently at a PLAN professional development day in Sydney, the chief executive of PLAN Australia, Ms Pannek, provided an overview of what the new best interests duty – coming into effect on 1 July 2020 – means for brokers.
Ms Pannek said: “This [legislation] enshrines in law what you do for your customers and what your customers expect of you,” Ms Pannek said.
“Come July 2020, you will be able to say to your customers that you will always act in their best interest.
“Only mortgage brokers can give their customers that guarantee. Credit providers can’t because [best interests duty] doesn’t apply to them. That’s a major unique selling proposition and will no doubt drive broker market share higher over the coming years.”
While Ms Pannek noted that the new obligations are built upon the foundation of existing requirements for brokers, who currently adhere to responsible lending duties under the National Consumer Credit Protection Act, she emphasised that while there is some overlap between responsible lending and the best interests duty, there are also “some very important differences”.
“[Best interests duty] is a much higher standard than ‘not unsuitable’,” she said, adding that a key element of the best interests duty would be customer education, and being able to demonstrate why a product has been recommended, and is in the best interests of that client.
She used the example of a customer approaching a broker with a credit product already in mind, such as a fixed-rate loan.
Under the best interests duty obligation, the broker must document and demonstrate that they have educated the client on the pros and cons of a fixed rate loan, as well as having informed the client of the different credit options available to them, she said.
“Brokers will also need to evidence the customer benefit, including features of the product such as an offset account, and assess whether the customer can actually afford the loan,” Ms Pannek told delegates.
She urged all brokers to read ASIC’s draft regulatory guide, which includes an overview of a broker’s obligations, ASIC’s approach to best interests duty, acting in a customer’s best interests, record keeping and resolving conflicts.
“Most brokers will already adhere to these principles. The key change from 1 July 2020 will be demonstrating how you go about it,” she said.