The Castle and the BID

I recently watched the Australian classic movie The Castle. Well, I watched it again (I've have lost count of the number of times I’ve seen it!).

In a seminal scene, Lawrence Hammill QC, introduces the phrase “on just terms,” saves the day, wins the case, and proves the point that a man’s home is indeed his castle.

The phrase, “on just terms,” taken from the Australian Constitution, pushes aside the legal ranting and bickering and cuts to the chase.

It takes a step back and asks the simple questions: What’s fair? What’s the right thing to do? What’s just?

It made me think of the latest legislative piece in the lending industry; the Best Interests Duty.

After watching the movie, I read a couple of guides and articles on the Best Interests Duty law and they certainly put me straight to sleep. They delved into the inclusions and exclusions, the loopholes and ancillary laws and considerations. They referenced the NCCP Act, Conflicts Priority Rule, Conflicted Remuneration Rules etc; all of which have been designed with legal challenges and lawsuits in mind.

To give you an idea of the level of ‘clarity’ provided in these acts, laws, and rules, here are some excerpts about who the Best Interest Duty applies to:

A mortgage broker is defined as someone who carries on business of providing credit assistance in relation to credit contracts secured over residential property. This definition centres around the concept of ‘carries on business.’

As a general rule, you are likely to be considered a mortgage broker and subject to these new BID laws if any of the following applies:

• you have assisted a customer with a home loan in the past 12 months

• you advertise that you can assist with home loans

• you hold residential loan accreditations.

With the last two points above, your intention will be considered, and you may still be considered a mortgage broker even if you have not lodged any home loan applications.

And here is another bit I had to re-read several times about the (proposed) legislation expanding BID to other brokers.

The new proposals will only cover credit licensees and credit representatives who provide credit assistance to a consumer in relation to a credit contract if they are a mortgage broker or if all the following apply:

• they carry on a business of providing credit assistance in relation to credit contracts;

• they do not perform the obligations, or exercise the rights, of a credit provider in relation to the majority of those credit contracts; and 

• they provide credit assistance in relation to credit contracts offered by more than one credit provider.

That sounds to me a long-winded way of saying Best Interests Duty applies to all of us.

Whilst these and other parts of BID are quite detailed in their efforts to define points and provide certainty, when it comes to answering the question: “How to carry out Best Interests Duty?” things become somewhat grey.

Here’s another article excerpt:

The best interest duty requires mortgage brokers to act in the best interests of their consumers. What is required to act in a consumer’s best interests will depend on the individual consumer’s circumstances. Mortgage brokers are likely to continue to:

• gather information about the consumer and their situation; 

• use that information to assess what credit assistance would be in the consumer’s best interests; and depending on that assessment, potentially suggest one or more options to the consumer, and provide information about why the recommended option(s) are in the consumer’s best interests.

A lot of ‘depends,’ ‘likelies,’ and ‘potentialies’.

Given BID is effectively all-encompassing, and your client's expectation is that you will be looking after their best interests, it's important you take a holistic approach and address all a client's lending requirements. For example, if you are working with a client on their new home loan and you discover they run a small business, is it not in their best interest to review any business lending requirements they have?  

With a continuation of a client-first approach, brokers can rightly welcome the principle of Best Interests Duty. It will highlight another point-of-difference for brokers from lenders and other mortgage intermediaries, who will not be subject to the same high standards. This should enhance the broker’s reputation.

So, let’s cut to the chase and take a leaf out of Lawrie Hammill’s book. For him, the phrase “on just terms” meant doing the right thing and giving someone a fair go.

For our industry, that equates to providing advice and recommendations that serve the client sitting across from you in the best possible way.

Let’s call it a Best Interests Duty.  

Philip Dempsey is a former broker and trainer at educational training provider, elevateb.

In conjunction with industry experts, elevateB has developed a self-paced, online, interactive Business Finance Certification to help finance professionals learn the skills required to work in the SME space. In addition, it provides strategies and soft skills to assist you to better market and deliver your existing and new-found client offerings.

For more information on the Business Finance Certification, click here.