Head to head: What’s your view on the best interests draft legislation?

While well supported, it may impose more compliance obligations on the broking channel

By Abel Riototar

29 Sep 2019

While well supported, it may impose more compliance obligations on the broking channel

Kapil Nepal
Personal mortgage adviser
Smartline Parramatta

There is no question that we, as mortgage brokers, need to work in the best interest of our clients. However, it is very hard to quantify the best interest duty as its scope is limitless.

As brokers, we deal with over 20 lenders and each lender has it own specifi c policies. Pretty much all clients prefer banks with cheap interest rates, but banks with cheaper and promotional interest rates usually have worse turnaround times. This means we need to justify to clients why we couldn’t go to a specific lender.

In my view, best interest duty comes with another layer of compliance, meaning more paperwork and more time spent on deals. Besides that, lending panels could become smaller to safeguard brokers. This might lead to less choice for customers.

Mark Stevenson
Managing director
Bell Partners Finance

I strongly support anything that will lead to greater consumer trust and confidence in the excellent work mortgage brokers currently do for their clients.

With around 60% of the home loan market already trusting the broker channel to handle their applications, enshrining the best interest duty in legislation should see this figure grow even higher as brokers gain greater trust from the other 40% of home loan applicants.

What is critical for the legislators – and those charged with upholding the law – is to get it right in ensuring the new legislation fully addresses any potential unintended adverse consequences for consumers, and that sensible application of the new laws is applied.

Kiran Thapa
CEO
Capkon Investments

I welcome the proposed introduction of the best interest duty. While the definition of the term sounds vague, the draft legislation anticipates certain behaviour from brokers, which includes comparison of loan products before recommendation; putting consumer benefit first if a conflict of interest is perceived; no credit advice without critical information; giving refinance options during annual reviews; and discouraging white label products if everything else is the same.

Most of these duties are anticipated by current responsible lending obligations and are being carried out by brokers anyway. However, with the introduction of legislation and a civil penalty attached to it, the industry can be expected to be more responsible.

KEEP DOING WHAT YOU’RE DOING

In a webinar for brokers, Connective director Mark Haron said that while the NCCP draft legislation around the best interests duty provided some good tips, its final message to the broking community was to “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,” he said. According to Haron, ‘best interest’ does not mean the same thing as ‘best price’ or ‘best product’. The term means providing customers with “what is in their significant interest” and, more crucially, putting their interest ahead of your own.