Expanding your business activities?

June 19th, 2017

Today’s consumers are looking for convenience and often expect to get all the services they require from one provider. As a result, many brokers are considering expanding their services and business activities, or affiliating with another business to meet consumer demand. It’s now a common occurrence to find brokers working closely with Financial Planners, Real Estate businesses, Property Developers and a host of other businesses, or even engaging in these business activities themselves. If you are thinking about expanding your business or your activities in this way, there are some important compliance implications to consider. Let’s review them together now.

The primary issue we see is ‘conflict of interest’

A conflict of interest occurs when the legal obligation you owe to a client is inconsistent with your own interests. It can occur if a decision or action is influenced by, or perceived to be influenced by, your personal considerations which may have the potential to adversely affect either party.

The mere presence of a conflict of interest does not mean that anything illegal has happened, but it is a very important consideration for those expanding their business activities. You must always bear in mind that a potential conflict of interest may arise when a licensee or credit representative conducts, or is associated with, other business activities in conjunction with their broking business activities.

Risks that may arise include:

• Clients are unable to clearly distinguish between your credit activities and the other business activity; and
• Privacy issues if there are common databases and staff within both businesses.

In order to mitigate these risks, the finance broking activities and the other business activities must be clearly separated activities, so that consumers are able to easily identify which activity is being provided to them at any time.

What will help to mitigate the risks?

1. Have separate corporate entities – where practicable or appropriate, but we recognise that in some circumstances this may be commercially impractical.

2. Have different business or trading names – if the finance broking activities and the other business activities are conducted by the same individual or company, then each must operate under different registered business or trading names.

3. Professional Indemnity Insurance cover must be maintained for all business activities – you will need to arrange cover for your other business activities in addition to your mortgage broking activities.

4. Stationery, signage and promotional material – each business entity should have separate stationery. Co-signage is permitted and promotional material may include references to both businesses, as long as consumers are easily able to identify the separate business activities.
5. Disclosure and explanation of business activities – you must ensure consumers clearly understand the advice and services provided as a credit representative and those provided in any other capacity, and the difference between the two.

6. Client files and information – separate client files must be maintained for each business. If stored electronically, records must be stored separately for each business and access should be restricted appropriately.

7. Client information obtained for one business should not be shared with the other business without written authority from the client.

8. Charging for services – fees and charges for each business must be separately invoiced on the applicable business/compliance documentation, and

9. Conflict of interest – you must have adequate arrangements in place to identify conflicts between business activities and ensure that a consumer is not disadvantaged where a conflict of interest arises between the credit assistance provided and the other business activities.

Compliance for your other activities

Please make the time to review your current business practices and procedures in light of the above information.  Please also ensure you’re compliant with the rules and regulations which apply to other activities you may conduct in addition to Mortgage and Finance Broking. For example, Financial Planners are subject to different ASIC guidance than Mortgage Brokers under the FOFA reforms.

If you are unsure about compliance requirements for your other business activities, talk to your local Compliance Support Manager and we’ll point you in the right direction. Did you know that your Compliance Support Team is available on Helpdesk? You can contact us by clicking the Help icon in Mercury and then selecting Compliance from the menu, or you can get in touch with us simply by emailing our Compliance Helpdesk directly at compliance@connective.com.au.