The Best Interests Duty (BID) for Mortgage Brokers was officially launched by ASIC on 1 Jan 2021. For those who missed it and its relevance to the market, we encourage you to review our Oct-20 and Dec-20 Better Outcomes articles on this topic.
One of the more controversial ‘side effects’ of BID is its impact on Brokers when arranging consumer car loans for their clients.
In summary, if a Mortgage Broker writes a car loan then BID must apply in the same manner as a Home Loan and therefore, the loan must be written at the cheapest possible rate (all else being equal). In the case of car loans, the initial interest rate offered by each lender can be further discounted, by the broker, up to 2%. In other words, it’s completely up to the broker whether the loan is delivered to the client at say 7% or 5%.
Under BID obligations, it is unequivocal that the broker must act in the best interests of the client and therefore deliver the 5% interest rate, using the above example. The complication here is that this means the broker earns NIL commission/income on the deal. As opposed to Home Loans, there is no trail or ‘built in’ commission provided by the lender.
The above situation has caused quite a deal of angst amongst Mortgage Brokers, but it’s even worse for those Car Finance Brokers who write the occasional home loan, or simply advertise the possibility of providing Home Loan credit assistance on their website.
In the above circumstances, these Asset Finance Brokers are also “captured” by BID and must write all loans with the best interests of their client in mind and therefore at a fully discounted interest rate with no income! For these Brokers, this is their primary income stream and hence an even more severe impact when compared to Mortgage Brokers who rely on car finance as supplementary income.
In both circumstances, it is a severe unintended consequence of the new Best Interests Duty.
If Brokers are not proactive now, they risk being penalised for breaching BID or jeopardising current business models.
One solution many Brokers are considering is to obtain a 2nd Credit License, therefore allowing specialisation and avoiding the abovementioned circumstances. In short, by quarantining non-Home Loan credit assistance under another license BID does not apply for such loans. SalesKey has begun 2021, by submitting numerous new ACL applications on behalf of Brokers wishing to protect their current business model and income streams.
We are specialists in the ACL application process. After 3.5 years, we maintain a 100% approval rate and turnaround times that are less than half of ASIC’s published SLA. Importantly, our ACL application service includes everything from application to implementation, including the development and execution of all ACL-related policies and procedures which ensures your new license is properly protected.
If you or your ACL holder is prompted by this article to find out more, please don’t hesitate to call us on 1800 954 488 for a completely obligation-free discussion. As mentioned above, we are specialists in this area and have helped many brokers previously. We’d love to help you and your business!
Scott, Darren and the SalesKey team.