There are many differences between lenders and brokers, but one striking variance is in their relationships with customers.
Major financial institutions can afford to lose you as a customer. If you have a bad experience with one of the big four and decide to tell the world about it (on social media) it won’t change how the bank does business.
But if you have a bad experience with a mortgage broker, who operates a small business, your review could have significant ramifications. Most mortgage brokers are small business owners and strive to create a positive outcome for their clients. It is in their interest to do so.
But mortgage brokers are now also bound by a Best Interest Duty (BID), something that lenders are not required to uphold.
What is Best Interest Duty (BID)?
A best interest duty (BID) was one of the recommendations made by the royal commission in its final report.
Since 1 January 2021, mortgage brokers have been obliged under ASIC to comply with BID. Specifically, ASIC expects brokers to:
- assess what product(s) and what credit assistance would be in each consumer’s best interests;
- exercise their judgment when determining what is in the consumer’s best interests, adding that in some situations, this would include “challenging the consumer’s perception of their best interests”;
- consider the product holistically and weighing up the relevant factors based on the value and benefits they offer that consumer;
- present consumers with more than one option, adding that where there are multiple options for a consumer to consider, they should be presented in a manner consistent with the consumer’s best interests; and
- hold evidence of compliance with the best interest obligations – predominantly from the broker’s records – to help demonstrate compliance and help credit licensees “take reasonable steps” to ensure credit representatives comply with these obligations.
Australian consumers should feel assured by these measures, which are a step above those required by lenders.