BID is my BAU!
Not sure if it will affect you?
This month the Government is knee-deep in a bill that absolutely affects your business and mine, and certainly affects our clients. Also, it’s a confusing market for borrowers. Interest rates are down and the media has been positive that by all indications, the property market is recovering, although housing stock is still light on compared to demand - particularly for springtime - which is partially responsible for driving up prices in most capital cities. How can you help them decipher it?
The section we discuss most often, as brokers, is best interests duty (let’s call it BID for short!). I have to tell you, BID is a welcomed concept for me. Why? Because I practice it as BAU (business as usual), so it’s already part of my brand promise with every client. Although the construct of implementing a requisite BID requires a bit of work on the Government’s behalf (the current bill is pretty vague on how you prove the duty has been delivered upon), the obligation for the industry to comply is a win for all. BID to my mind involves a whole host of considerations and activities.
It’s easy when BID is in your DNA
For me, BID is embedded within my day-to-day, and includes things like:
Actively and periodically revisiting my client’s current loan to compare its competitiveness and suggest refinancing options when the current loan becomes uncompetitive or unsuitable for the client’s changing financial circumstances.
Conversations with clients about their plans, their hurdles, their aspirations before, during and after the loan… these conversations form the basis for defining which loan or product is truly the most suitable for them at that point in time. And you know as well as I do that lowest does not always equate to most suitable. Sometimes timing is a more important factor to a client, sometimes it’s add-ons, risk tolerance, sometimes it’s flexibility or complexity that are the prevailing factors over price. The thinking behind all of this needs to be documented thoroughly.
BID is also ensuring that every time I organise a new loan for a client, that I have also made sure they are adequately insured to handle the new debt should anything prevent them from meeting repayments, by way of introducing my client to a specialist adviser.
How do you demonstrate the duty?
We expect that BID will likely be legislated for brokers and advisers. For me, as something I practice daily, it’s already part of my brand, my daily behaviour and my beliefs. As a broker who approaches relationships with my customers as a long-term partnership, rather than a short-term or one-off transaction, a trailing commission doesn’t stop me from wanting to make sure my client, who I would like to stay on as a client, has a highly-competitive loan in the current environment. At one point in time, Loan X might be a superior product, but six or eighteen months later (and particularly so in this tumbling rate environment) it might be superseded by another product with the same or an alternate lender. My BID to my clients is to maintain the curiosity, to seek and negotiate the better deal, to move their product with the market and their needs when appropriate.
Loyalty shouldn’t be a disadvantage
The ACCCs investigation into deals for new borrowers versus existing borrowers will likely give brokers like me even more leverage to deliver great deals for our clients. Research suggests new clients are currently often offered half a percentage point discount on home loan rates when compared to loyal clients.
There are plenty of wins to be had with the legislation of BID, particularly for our clients. For some in our industry, the expectations around rationale, documentation, evidence and decision-making may become burdensome. I imagine the Government will expect exceptional documentation outlining why Loan A was chosen over Loan B - Z. Lucky for me, that’s already part of the process I follow to ensure I’m always operating in such a way that puts my clients first.