Q. Following ASIC’s BID review, will you change how you document and explain your reasons for recommending a more expensive loan over the cheapest available option? If so, how?

Making the rationale clear

The review reinforces the importance of clear, structured notes and documenting not just why a loan is suitable for a client, but why it represents the best overall outcome when a lower rate alternative is available.

We’re comfortable with how we structure our BID notes and documentation to explain our recommendations but continue to look for opportunities to improve. As any good broker knows, the cheapest rate isn’t always the most appropriate. The key is to clearly document the rationale behind the recommendation in sufficient detail so that anyone reviewing the file in the future can understand why that decision was made.

Ultimately, the lowest rate doesn’t always represent the best outcome, but the reasons for recommending an alternative need to be evidence-based, transparent, and clearly communicated to the client.

Building client confidence

It’s important to highlight that customers don’t necessarily qualify for the cheapest loan, and depending on their specific goals and objectives, the cheapest loan isn’t always in their best interest. Policy, borrowing capacity, loan structure, flexibility, and a lender’s ability to deliver within the required time frame can all significantly influence the outcome for a client.

The best interests duty is one of our greatest market differentiators as brokers. For my team, we have always provided comprehensive notes in our recommendation. The ASIC review has reinforced the importance of doing so. The more clarity we can provide to our customers regarding the rationale behind our lender selection, the more they can feel confident in the decision.

Strengthening existing processes

I believe most brokers genuinely act in their clients’ best interests by asking the right questions and understanding their property and financing goals. The potential shortfall is often how these discussions and decisions are documented.

The cheapest loan isn’t necessarily the best, just as the cheapest car isn’t necessarily the right one. Our role is to understand each client’s unique needs and recommend a suitable solution, rather than simply comparing interest rates.

At MC Finance Group, we document clients’ objectives and our recommendations in the SOCA. When recommending a loan that isn’t the cheapest, we also explain our rationale in writing, including a separate email. Following ASIC’s review, we’ll place even greater emphasis on documenting our reasoning, although this won’t significantly change our existing process.

Reviewing and reinforcing training

Following the BID review, we undertook an audit of our current processes and ensured our notetaking is sufficient for what ASIC expects, even if it is counterintuitive to the whole purpose of best interests.

We were pleased that, as part of our audit against what ASIC’s expectations are, we were able to see that we were already correctly identifying to the clients the reasons why we are recommending a product that is more expensive, as we aren’t solely focused on the rate being the entirety of the transaction.

I have ensured that brokers I am mentoring understand this though, and we have undertaken several training webinars with our licensee to ensure that we do remain on the right side of the expectations.