Recently implemented ‘Best Interest Duty’ obligations provide an excellent opportunity to build your clients’ trust. Here’s a quick look at how to effectively communicate and explain the obligation to clients.
What is BID?
Position BID as an extra layer of protection that only mortgage brokers offer as BID does not apply to lenders. Begin by providing a clear outline of the two essential aspects of BID along with illustrative examples.
#1 Best Interest of clients
Mortgage Brokers are legally required to act in the best interests of their clients. This is achieved through the recommendation of a product that is best suited to a prospective borrower’s financial and individual circumstances. Borrowers can rely on their mortgage broker for a product recommendation based on relevant cost and non-cost factors. Typically, cost-related factors include but are not limited to interest rate, fees, and repayment amount, among other cost parameters. Non-cost factors, on the other hand, encompass aspects like loan features and flexibility. The rationale behind considering both cost and non-cost factor is that the lowest priced option may not be suitable for a borrower in many cases. For instance, a home loan with a low fixed rate may not offer any flexibility to make larger and more frequent repayments which in turn may leave the borrower financially worse off in the long run.
#2 Conflict of Interest
Legally, mortgage brokers are required to place the borrower’s interests above their interests and the lenders’ interests. Use an easy example to elaborate on how it works. Here’s an option. Let’s say Home Loan ‘A’ offers a great commission to the broker but a long turnaround time that could restrict a borrower’s participation in upcoming auctions. On the other hand, Home Loan ‘B’ offers all benefits of ‘A’ and has a lower turnaround time but a lower broker commission. In this case, the mortgage broker will place the client’s interest relating to a quicker turnaround time and recommend Home Loan ‘B’.
How will BID impact how a Mortgage Broker works
Successful and reputed mortgage brokers have always been following best practices laid down by BID. However, to reemphasise the benefit of BID, call out what broker’s need to adhere to in terms of day-to-day work.
Collecting Relevant Client Information
A thorough analysis of the borrower’s financial position
- Living Expenses
- Financial Commitments
Understanding and stating the client’s borrowing goals
- Loan Purpose
- Loan Affordability
- Opportunities to pay off the loan faster
Identifying product options
A broker will scope the market and examine the cost and non-cost product benefits for the client.
Based on potential home loan matches fulfilling the borrower’s individual needs, the broker will
- Present you with product options
- Provide a rationale behind each recommendation
- Provide sufficient guidance and education so that the client can make an informed decision.
- Establish regular communication with
- Handle the loan paperwork and application after the borrower has made a selection.
In addition to access to a larger number of product options (due to the lending panel most brokers are aligned with) and application support, BID is another prominent benefit that borrowers can get only from Mortgage Brokers and not lenders.