The best interests duty for mortgage brokers is a statutory obligation for mortgage brokers to act in the best interests of consumers (best interests duty), and to prioritise consumers’ interest when providing credit assistance (conflict priority rule).
These two obligations are collectively referred to as the Best Interests Duty.
Based on the Royal Commission’s recommendations, it aims to align “consumers’ expectation and interest with that of the interest of the mortgage broker.”
When did the Best Interests Duty come into effect?
The Best Interests Duty for mortgage brokers officially came into effect on 1 January 2021.
How are a consumer’s best interests assessed?
ASIC, the industry regulator who has been tasked with its implementation, released its regulatory guide (RG 273) on assessing the best interests of the consumer by:
- The cost of a product—such as interest rate, fees and charges and repayment size—as factors that should generally be prioritised during this assessment; however, cost is not the only matter relevant to whether recommending a product is in the consumer’s best interests.
- Where other non-cost considerations affect what is in the consumer’s best interests, brokers should assess whether those considerations or loan features have a realistic possibility of offering the consumer, good value or a net benefit relative to other options.
What does the Best Interests Duty mean for customers?
Mortgage brokers now operate under an unrivalled Best Interests Duty when providing credit assistance to consumers, which provides yet another compelling reason to use a broker.
This new legal duty offers customers peace of mind knowing that their mortgage broker is legally required to act in their best interests and put their interests first.
Did you know that the Best Interests Duty does not apply to banks?
As mortgage brokers, we act in your best interests when recommending a home loan, whereas a lender sells you their products. In other words, we must always act in your best interest; however, if a customer goes to a bank directly, then the bank can act in their own interests and not those of the borrower.
What is the conflict priority rule?
The conflict priority rule is an additional requirement in the new best interests obligation, which requires mortgage brokers to resolve conflicts of interests in the consumer’s favour.
According to the draft guidance, “The conflict priority rule means that you must not recommend a product or service of a related party that would create extra revenue for yourself, your credit licensee or another related party, unless doing so would also be in the consumer’s best interests”.
More importantly, if there is a conflict of interest, and the broker is unable to prioritise the consumer’s interests, then the broker must not provide the credit assistance.
Does the Best Interests Duty apply to banks?
No, the Best Interests Duty does not apply to banks.
Mortgage brokers have to follow the best interest duty; however, banks do not. In other words, we must always act in the best interests of borrowers; however, if a customer goes to a bank directly, then the bank can act in their own interests and not those of the borrower.
Mortgage brokers offer choice, experience, and have a legal duty to act in your best interests when providing credit assistance. As mortgage brokers, we act in your best interests when making a credit recommendation, whereas a lender sells you their products.
We welcomed the implementation of the Best Interests Duty (BID) as our customers can rest easy knowing that when dealing with us, we are acting in their best interest. This has differentiated us significantly from the banks.
A broker who is working with BID principles will be focused on walking step by step with you through the lending process and helping you emerge out the other side as a more informed, more financially savvy person able to take better control over your financial needs. That is the focus at Nectar Mortgages.
Author: Richard Chapman, Nectar Mortgages Brisbane, 0487 004 484
Disclaimer: The information provided in this article is intended to be of a general nature only and does not take into account any person’s particular objectives, financial situation or needs. You should always seek professional advice or assistance before making any financial decisions.