The Loan Market Way - Step 3: Best Interests Duty Research
Under responsible lending obligations, you’re required to verify your client’s financial situation. Although responsible lending and Best Interests Duty are separate obligations, the information gathered for the purposes of responsible lending may help you to determine what’s in your client(s) best interests.
The information initially disclosed by consumers will often be insufficient for you to identify the client’s individual circumstances and do the analysis necessary to recommend products based on what would be in their best interests. As such, you should make further enquiries to obtain complete and accurate information based on the individual's particular situation and information provided. Without this critical information you should refrain from making a credit recommendation.
In order to meet your obligations, you should always seek to:
- Cross reference payslips & bank statements to calculate income
- For self-employed, ensure all calculations are consistent with tax returns
- Validate bank statements against the Online Fact Find and MyCRM, questioning any further anomalies and ensuring information is consistent across platforms / documents (or adding commentary to mitigate any variance)
- Ensure all other documents are verified, paying extra attention to anything that may impact the outcome of the loan application (i.e. non- disclosures)
- Make further enquiries, ensuring you have full clarity and validation of all required information
- Make notes or commentary that will act as a record of these conversations and actions and support you in making your recommendation
Pre-Recommendation Calculations and Product Research
In order to make your recommendation you must complete the:
- Funding Calculator
- Servicing Calculator (copy needs to be uploaded within My CRM)
- Product Finder
In order to assist you in meeting the Best Interests Duty, Loan Market requires you to hold a minimum of 20 lender accreditations. If you’re still not satisfied that the options you can access and recommend will allow you to act in your client’s best interests, you must refrain from providing credit assistance. However, if you believe another mortgage broker may be able to assist your client you may refer them accordingly.
As per RG273.113, in order to meet the Best Interests Duty you should periodically review these to ensure that your panel remains sufficient to meet the Best Interests Duty. To view your accreditations, access the Accreditations tab in your profile in MyCRM.
In circumstances where holding 20 accreditations is impractical (i.e. regional brokers), this needs to be waived by email@example.com who will also review these accreditations periodically.
In order to meet the client’s best interests, you should ensure filters are aligned to their needs and objectives with the Product Finder.
From these findings, you should use your knowledge and research to identify up to 5 lenders / products that are available to the client and aligned to their needs, objectives and financial situation.
A minimum of 3 lenders / products must be presented. We recognise that at times 3 will not be available due to niche requirements. In these cases, clear notes must be captured to highlight why less than 3 were presented.
As per RG273.92, from this shortlist you should highlight your one recommended option that you believe (and can prove) is in the client’s best interests.
As per RG273.90, to meet your best interests obligations you must present your recommendation rationale in a way that clearly educates the client(s) on how the recommendation is in their best interests. In addition, you should articulate why you have recommended this option as opposed to the other options.
In order to support you preparing this, within the Loan Facilities section of MyCRM you should complete the Recommendation Summary and the appropriate Rationale Headers.
Word count: to demonstrate best practice, we recommend a minimum of 400 words in presenting this. There is a minimum word count of 200 and MyCRM won’t allow you to proceed if you don’t meet this requirement.
The rationale is broken down into the following 7 sections:
- Summary (Compulsory): Provide an overview of why the lender and product selection is in the client’s best interests, aligning this to the customer’s specific needs, objectives and financial situation (as per the Goal Setter). This should be clear, concise and current.
- Interest Rates (Compulsory): As per RG273.51, interest rates should be considered a key factor when making a recommendation. This section should include commentary as to why this rate is in the best interest of the client. You can also include other cost factors here to justify your recommendation (i.e. comparison rates, package costs, cash back offers, fees and charges or other factors).
- Product Features: Explain how the product’s features meet the client’s needs and objectives, also using calculations to educate the client on the cost and benefits of these.
- Turnaround Times: Explain if and why lender turnaround times were a factor in making any decision. Where you’re part of a tiered servicing arrangement with the recommended lender it’s imperative you prove that these faster servicing times are in your client’s best interests.
- Lender Preferences: Explain if the client has a lender preference and why. Where you believe an alternative lender has a more suitable offering, ensure this is disclosed to the client. It’s important you document why the client believes another lender to be in their best interests.
- Credit Policy: Explain if the lender has a specific credit policy that determined the selection.
- Borrowing Capacity: Explain if the lender was selected due to the client’s loan amount requirements / the lenders appetite for this loan size.
- Other: Where there were other factors in making any recommendation or any additional commentary you can include this within this section.
Remember - this is where you’re proving why your recommendation is in your client’s best interests. These notes will also feed through to the Game Plan, so will be provided to the client and used to confirm your recommendation process.
For more information please email firstname.lastname@example.org