Three tips for analysing client expenses

Brokers play a crucial role in assessing and verifying their clients’ income and expenses during the loan application process. This week, Choice Partnership Manager for Victoria, Daniel Scollo, discusses his top tips for having quality client conversations.

To meet their responsible lending obligations, brokers must make reasonable enquiries into a client’s financial situation to assess whether a product or loan amount is suitable for their individual circumstances. An important part of this is discussing income and expenses with the client.

As a Choice Partnership Manager, I often receive questions from brokers about how they can best have a detailed conversation with a client to achieve this, so here I would like to share my top three tips.

Ask the right questions
Let’s face it – while most of us could state our income quite accurately, we would be hard pushed to put an exact dollar figure on our monthly outgoings. The range of expenses such as insurance, school fees, grocery bills and car payments can really add up.

Asking the right questions helps to both jog the client’s memory and provides the broker with a clearer picture of a client’s ability to appropriately manage a loan. Some of the questions you may want to ask could be:

• What is the amount and source of your income? And do you have any other sources of income other than your work?
• What type of work do you do? Is it full-time or part-time, contract or permanent?
• What are your fixed and variable expenses – for example, insurances, hire purchases, utility bills, private school fees and childcare, petrol? And, what about entertainment and lifestyle spending? Do you have any memberships? Etc. Remember to also help clients evaluate true ‘discretionary’ expenses, which should be noted as such.
• How many dependents do you have?
• What are your current assets and liabilities – for example, investment properties, credit cards, store cards and car loans?

Verify the information
There are a number of ways to check the information your client has given you, and the good news is, technology is enabling a much faster verification process. Customers can now pull up bank statements on the spot (thanks to mobile banking apps), and many banks also now offer apps that help customers break down their spending.

It’s also useful to ask your customer to look through the transactions they’ve made in the past month to jog their memory – including what direct debit arrangements they have in place.

In addition to payslips, tax returns and Medicare cards can also be a great source of information as they pull together a lot of information and detail the number of dependents a client has.

Confirm and document
Once you have completed an independent assessment of your client’s income and expenses, it is essential to check in with them again to identify any expenses they may have overlooked.

Also discuss with the customer whether they are planning to make any changes in the foreseeable future that could affect their capacity to repay the loan – starting a family, taking a career break, studying or changing jobs, for instance. Brokers should also help their customers develop an exit strategy by asking the right questions to get a detailed picture of their future financial plans.

Once you are happy that the details you have received are correct, provide the final estimate of living expenses to the client and keep a copy to document your discussions. If you follow these steps you will be able to make a reasonable estimate of your customer’s living expenses and their ability to service a loan – both essential for ensuring best consumer outcomes. Remember to document and have clients sign off on any true ‘discretionary’ expenses.

Daniel Scollo is Partnership Manager for Victoria with Choice Aggregation Services. 

This article is part of a series featuring Choice Aggregation’s broker support team focusing on how they can help brokers overcome common challenges. Find out more: http://www.choiceaggregationservices.com.au/

Previous diary chapters from 2017:

Growing your business volumes
Recruiting the right people
Getting the most out of peer-to-peer learning
Ella Moradi on tips for tackling marketing
Making the most of your lending panels
Compliance causing you strife?
Building strong business networks