Best practice note taking to be best interests duty ready
The best interests duty (BID) reforms will take effect from 1 January 2021, and there will be consequences for brokers that fail to comply with their obligations.
We’re still waiting on clarity from ASIC on how BID applies in certain situations, but they have made it abundantly clear that making detailed notes is a key consideration when evaluating if a broker is BID compliant.
We’ve compiled some examples of good notes to help you get ready for BID.
What is a BID compliant note?
All notes are good, but some are better than others and will go a long way to ensure you’re compliant.
When you’re drafting notes, create a narrative that describes your process so an independent third party (such as ASIC, AFCA or a court) could clearly see the process you followed for the client.
Best practice notes are:
- a timeline of the opportunity (or a narrative summary as ASIC would say)
- a record of what was agreed and why
- factual and use the client's exact words where possible.
Watch out: Having no notes at all is most concerning and leaves your business open to scrutiny from regulators.
Tip: Ask your client to confirm what you’ve discussed and their decision via email and save to their record in your CRM. Mercury makes this easy!
Example 1 - New client
Note 1:
10/2/2020 – Conducted fact find via phone as client living interstate. Client has deposit and wants to purchase first investment property. Client has found property and signed purchase contract. Discussed the following with the client:
- purchase price and required loan amount, IO v P&I, variable v fixed, current assets and liabilities, current living expenses, an exit strategy for the loan (sell investment and/or use cash to reduce loan).
Credit guide has been provided to the client.
Note 2:
6/7/2020 – Preliminary assessment not run due to internal admin error. Preliminary assessment now rerun and placed on client's file. Living expenses discussed with the client. I requested bank statements to confirm living expenses. Month of February from Bank XYZ statement used to calculate living expenses.
Summary:
✔ Evidence of detailed conversation
✔ Credit guide provided to client
✘ Significant gap in timeline
✘ There is no indication of what the client has agreed to
Example 2 - Living expenses
Monthly expenses completed by Jack and Jill through the needs analysis questionnaire.
They declared a monthly living expense of $5,080. Given their income and three kids, I felt this was an accurate representation of their spend. Jack works away every second week so isn’t home for 26 weeks of the year meaning food expenses are less and I confirmed his employer meets these expenses.
In addition, the car lease covers all associated car expenses for the Mercedes.
The declared living expenses align with my review of their bank statements. Figure adopted for servicing.
Summary:
✔ States how the client provided the information
✔ Demonstrates how the broker verified information
✔ Highlights exceptional circumstances
Example 3 - Funding position
Hi Rosie,
Attached gives you an idea of the costs associated with purchasing the property, plus estimated bank charges including lenders mortgage insurance (LMI). Please refer to our fact sheet about LMI.
Based on these calculations, you should have approximately $9,000 in surplus funds post settlement which will provide you with a buffer for anything unexpected relating to the purchase of your new property and which you advised you would like to retain.
Summary:
✔ Email with more information attached
✔ High level summary in email
✔ Fact sheet to educate
Example 4 - Product comparison
Hi Rosie,
This report details the 3 lenders that I am recommending for your consideration. As your borrowing requirement exceeds 80% of the purchase price, there will be some LMI payable and I have included the estimated cost of each lender in the loan amount. This amount will not be paid out of your cash reserves – it is added onto the loan and paid off over the course of your loan term. The LMI added to your loan amount will increase interest charges over the life of the loan, however you do not have sufficient savings to pay the LMI premium up-front. I have outlined these calculations in the attached Funding Position.
I have only looked at variable interest rates, as you expressed a preference in your Needs Analysis questionnaire. In our meeting we discussed the advantages and disadvantages of fixed versus variable and you reconfirmed your preference for variable rates.
My recommendation would be to go with Bank ZZZ, given they have the most competitive interest rates and whilst the application fees are slightly higher than the other two lenders, the overall savings this product delivers over the life of the loan makes up for the additional costs upfront.
Please review the information provided and let me know if you are happy to proceed with Bank ZZZ or if you have any other questions about the products listed in the report.
Summary:
✔ High level summary with attachment
✔ Provides product comparison
✔ Makes recommendation and justifies why
Request a demo on Mercury today.
If there is one thing you can start doing today to prepare for BID it is taking adequate notes. Connective’s business platform, Mercury can assist you with your note taking so that you are BID compliant by 1 January 2021.