What is the Best Interests Duty and What Does It Mean for Me?
Recent legislative changes regarding the banking and financial industry’s conduct have officially come into effect as of the 1st of January 2021 as a result of the 2019 Banking and Financial Services Royal Commission. The best interests duty is an example of one of these changes that affect mortgage brokers and YOU. This article will outline what the best interests duty is, what it means for mortgage brokers and what it means for you, the customer.
What is the Best Interests Duty?
The Best Interests Duty (BID) is a series of legislative obligations regulated by ASIC (Australian Securities and Investment Commission). These obligations stipulate that mortgage brokers:
- must always act in the best interests of their customers in the provision of their services
- avoid conflicts of interest when recommending financial products
BID aims to improve customer outcomes when interacting with the financial services industry and to prevent unconscionable conduct from brokers.
What Does This Mean for Me?
The BID dictates that mortgage service providers are legally required to act in line with the best interests of customers. This means customers can feel confident with the help that they are receiving.
Mortgage brokers need to justify the products that they recommend to their customers based on both cost and non-cost considerations. This prevents conflicts of interests with brokers recommending certain products that give them higher commissions rather than for the benefit of the customer.
The BID also requires increased transparency from brokers in the form of educating their clients. Previously, customer confusion and educational inaccessibility regarding the financial industry meant that customers had no ability to critically evaluate advice given to them by brokers. Brokers are now expected to provide clients with financial knowledge so that they are aware of the decisions being made and the processes that are being followed.
Banks Do Not Need to Comply with the Best Interests Duty
The best interests duty only applies to mortgage brokers, not banks. This means that banks are not subject to acting in their customer’s best interests. Instead, banks may opt to recommend their products as the customer’s best mortgage option, denying them of choice and legal grounds.
Mortgage brokers such as Vision are required to act within their clients best interests and can showcase loan products from a wide variety of lenders. For more information on this, click here.
What Does This Mean for Brokers?
What the BID requires that brokers increase their reporting, research and justification of the actions and advice they give. This means that brokers need to:
- Increase Information and Research of Clients – Brokers need to have a thorough understanding of their client’s situation and their needs before recommending products. This requires significant and meaningful communication between brokers and customers
- Increase Client Education and Detailed Presentation – Brokers need to educate their customers about their decisions and the fundamentals of the financial services industry to ensure that their customers can have some agency in their choice of mortgage provider. Recommendations need to also be tailored to client circumstances and justified
What Do We Think of The Best Interests Duty?
Vision Property and Finance is in full support of the BID obligations and its protection of customers. It gives confidence to those looking to interact with a mortgage broker, allowing for any worries regarding the processes behind their loan recommendations to be quelled. These obligations however do not change how Vision operates. As demonstrated by our award-winning services and our wealth of customer testimonials, Vision has always been looking after our customer’s interests first.
If you would like to arrange a free consultation with one of our specialists, to discuss your mortgage options, please get in touch with us using our live chat, or book in using the link below: