With the NCCP draft legislation outlining best interest duty for mortgage brokers now out for consultation it is understandable brokers are asking the question, ‘how does this affect me?’
We can use the phrase all we want, but with brokers already acting in their customer’s best interests, how will new legislation really affect the way they do business?
In a webinar to brokers, Connective director Mark Haron and group legal counsel Daniel Oh, discussed the changes to the NCCP. Though there were some good tips in there, the final message was, “keep doing exactly what you’re doing”.
“This is the point we’re trying to make; brokers we believe will already be operating in a customer’s best interest. You don’t have a sustainable business if you don’t put your customer’s interests ahead of your own anyway,” Haron said.
What does ‘best’ really mean?
As one broker who wrote into the webinar said, in marketing you can’t use the word ‘best’; you can’t advertise something is the ‘best product’. Haron said it was important here to remember that when the term ‘best interest’ is used, it does not mean the same thing as ‘best price’ or ‘best product’.
“Providing the customer what is in their significant interest, but more crucially it’s putting the customer’s interest ahead of your own,” he said.
In the recent ASIC report into customers using mortgage brokers, ASIC made mention that customers go to mortgage brokers to find the ‘best’ home loan, but that many customers believed they could have found a better price.
This is not what best interest necessarily means though, said Oh. “Best doesn’t necessarily mean cheapest, it can be turnaround time, it could be application of credit policy and size of loan - it’s not about price.”
While mortgage brokers will already say they work in their customer’s best interest, Haron said that the industry should use the legislation as a “badge of honour”.
“Banks can’t look at best interest because they only have their own products to offer. We should be carrying this best interest duty as a badge of honour. I work in your best interest, if you go to a bank they can’t act in your best interest,” he said.
What should you be doing as a broker?
In terms of how the best interest duty might affect your business, it’s hard to determine at this point while consultation is still underway.
But Oh said there are a few things brokers can be doing to help themselves and his first point was simply: “Plenty of notes.”
“It becomes even more evident that the more we take notes, the more we record things, especially your conversations, the more you can protect yourself down the track,” Oh said.
“Maybe send them an email with a summary of the conversation and say, ‘please confirm by reply that you agree with my summary’,” he said.
“Some of the information from the government about this new legislation is making sure you have got all the key information all the critical information before you start making recommendations to the customers. If you feel you don’t have everything, ask the customer again.”
Send information to customer
“We all know that you brokers are sifting through all the loans you’re accredited with and you’re effectively going to your customer saying this is the one you recommend,” Oh said.
“Unfortunately with the new legislation you may need to document this process. Think about your preliminary assessment where you do a product comparison. Maybe you should be sending this to your customer so you can show we have thought about it.”
Have your say on the draft legislation here.