Best Interests Duty by David and Caitlin | Live with Affordable Staff

David: Hello and welcome. You’re live with Affordable Staff. David Judge here and I’m here talking to Caitlin today and Caitlin’s going to have a bit of a chat to us around best interest duty. So Caitlin can you please explain what best interests duty is? 

Caitlin: I‘ll do my best very quickly. So in response to the royal commission, there was new legislation passed that mortgage brokers will be subjected to from the 1st of January 2021, it was actually delayed by six months thanks to COVID, and it is called the best interests duty also commonly known as BID within the industry.  So the intention of the BID is to improve customer outcomes by requiring mortgage brokers to always act in their best interests and by reducing the potential for conflicts of interest. 

David: Okay, so can you just talk to us a little bit more around how it works? 

Caitlin: Yeah. So look, I guess from a really high-level perspective, mortgage brokers will be required to show that they’ve complied with BID. So their client files will need to keep additional records confirming research and advice provided and probably a whole lot of stuff as well. 

David: Yeah, okay. So you’re talking records. What type of records is it that you’ll have to keep?  

Caitlin: So on top of the existing responsible lending laws and the documents that are required for that, because there’s already some there that won’t be changing for some time. Brokers will also need to ensure that they’ve made detailed inquiries into the client’s needs and objectives as well as clarified document all instructions that the clients have given to them if they’re ever unclear, and also provide education and guidance to clients relating to financial products. That was I guess a key issue coming out of the royal commission, is that some clients didn’t understand what they were getting into which is obviously then caused them financial hardship. Additionally, brokers will also have been required to hold sufficient product accreditations as well too. So some may need to go out and get them additional product accreditations so that they can make sure they can give their clients access to a wide range of products and lenders. 

David: Yeah, okay. So can you give me a few examples of the things that need to be kept on file? 

Caitlin: Yeah, absolutely. I can give you a long exhaustive list, but look, brokers will need to ensure that they keep their records for all client interactions. So any interaction that the broker has with the client really needs to be documented. Any advice provided in terms of credit advice, and so on top of the responsible lending document requirements because again, they will still be remaining. The client files will also need to include records of the conversations with the customer, so including those where the broker has educated the customer on certain products or how product feature works, information showing how the broker acted in the customer’s best interest because ultimately, that’s really what we’re trying to achieve — acting in the customer’s best interests. The options they gave to the customer, the product recommendations, information explaining the reasons for the product recommendation, and why it was in the customer’s best interest, so that’s really a key difference now. In that previously, it was nice to have on file but now it will be required that those explanations will have to be there. And of course, any potential conflicts of interest that may be identified and of any steps that have been taken to prioritize the customer’s interests. So there’s quite a bit there, but this additional record-keeping requirements are probably expected to add quite a bit more onto loan processing. So creating a bit more admin for brokers. 

David: Yeah. So that obviously segues quite nicely into Affordable Staff. So can you talk to us around what a broker can or how a broker can utilize Affordable Staff for the solution taking into account this, the BID admin? 

Caitlin: Yeah absolutely. So I guess if a broker is sort of thinking about like how am I going to handle all this admin?’ you know, it’ll probably require an extra person to help me’, I guess in most cases if they’re wanting to keep up their application levels. So if they’re considering a cost-effective way to manage these compliance requirements, then a virtual assistant might be the right solution for them. You know I guess in my mind the types of activities that a VA could assist a broker with BID, requirements would include obviously email and communication maintenance, making sure all of those interactions are updated, file structuring support that’s super important when it comes to time for an audit check, preparing client documents and records, generally speaking, an approved template is a fantastic way of making sure everything’s done as per you know, the aggregator needs or what the broker likes to see. You know, if you want to record your customers interactions just to make sure you really have all bases covered, then a VA could potentially transcribe those meetings for you into your client file, and also just the basicsyou know, establishing and maintaining workflow processes and systems and just checking that all files have sufficient records prior to being filed away; so a post-settlement compliance check. And look, at the end of the day, we anticipate that a VA can help break a save anywhere from 10 to 20 hours per file by handling the admin of the client application and that’s pre-BID so who knows it could increase. 

David: Yeah. Well, that’s what I was going to ask is what is that going to mean time-wise once big change?

Caitlin: Who can really know at this point and think it all will depend on the aggregator’s needs as well too because each aggregator has different processes in place and different requirements for their broker, but look, it is anticipated that it could at least add a couple of hours maybe even four or five depending on how good the broker’s record-keeping is and how well they are at taking notes and things like that. So yeah it’s important to, you know, if they’re really struggling under that, have a chat with us so we can see if there’s a way that we can help so that they’ve got time to work on their business rather than in it. 

David: Are there any concerns and this is obviously, this one’s not scripted so I’m going to ask it anyway. Are there any concerns where brokers having or engaging an outsourced team member to handle it? 

Caitlin: In terms of compliance and BID? I think it’s more about the broker really needs to have a process set up. So as long as there is a set process in place, then there’s little room for error. And this is nothing new in terms of legislation and things that they have to comply with, it’s just adding additional steps. We can help create a process as well too. So you know as a part of our onboarding with our broker we want to make sure that they’ve got everything in place to for really good business continuity as well, but also so that their, that knowledge bank is really getting built within their business. So you know, setting up really excellent processes, we can help with compliance checklists and things like that too if they’re struggling. Yeah, we can help in everywhere, hopefully.  

David: Well, fantastic. Thank you very much, Caitlin for having a bit of a chat to us around BID and I appreciate your knowledge and bringing me up to skill around what BID is and the potential impact and the best ways moving forward. So thank you to everybody and we’ll talk next time. David Judge from Affordable Staff where there’s a better way to outsource.