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Some brokers are making the mistake of not digging deeply enough during client discussions, according to a compliance expert.
Compliance One principal David Carson, who worked at ASIC from 2003–2012, said some brokers will collect financial information from their clients but fail to properly question them about their objectives.
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“I think what you sometimes see in the industry is a desire to reduce a consumer’s genuine objectives into very simple things,” Mr Carson told The Adviser.
“For a consumer who wants a home loan, it’s easy to define their objectives as getting a home loan, and therefore it’s easy to deliver on that objective by just introducing a consumer to a home loan.
“More specifically, though, if you were to delve down into the consumer’s objectives, you may find that they want a home loan with certain options or that they have a specific time frame – for example, they’re going to upgrade their home in three years’ time.”
Mr Carson said the best loan applications demonstrate that the broker has discussed the consumer’s objectives beyond just the home loan itself.
Brokers who want to remain compliant need to keep updating their product knowledge and keep attending professional development courses, Mr Carson said.
He also advised brokers to thoroughly research potential, new compliance obligations when diversifying into a new sector or opening a new referral stream.
Mr Carson said most brokers have a good general understanding of compliance, although he added that brokers who operate in groups find it easier than sole operators.
“I think the hard thing for the smaller brokers or the independents is marrying up their understanding of what their obligations are with what their documents say, because you don’t have the resources to have everything put through a team of lawyers,” he said.
Mr Carson told The Adviser there are two misconceptions that brokers have about ASIC – that the regulator unfairly targets loan writers and that it ignores breaches by lenders.
He said that while penalties against rogue brokers are almost always proportionate, they can sometimes appear “very harsh” because ASIC is unable to publicise all the relevant information.
He also said that ASIC has no sympathy for compliance breaches by lenders, although he acknowledged the “functional reality” that makes it harder to crackdown on major institutions.
“Administrative action against a smaller entity is certainly more straightforward since suspending the licence of a two-person firm with a few hundred clients has fewer indirect consequences than, say, suspending the licence of an entity that employs many staff and has thousands of clients,” he said.
[Related: Mortgage fraud – it’s back!]
