Compliance in the digital age

While the Australian Securities and Investments Commission (ASIC) recently published its draft regulatory guide on how it expects mortgage brokers to comply with the incoming best interests duty obligations, the broking industry had been subject to new rules and expectations well before this. Over the past year, requirements around income and expenses have been ever changing (with ASIC appealing a judgement relating to when it is permissible for lenders to rely on HEM), the reasonings behind interest-only suitability have heightened and accountability and transparency seem to be the words on everyone’s lips in the aftermath of the banking royal commission and  regulatory reviews.

All of these factors support the need for mortgage brokers to embrace technology in their businesses to adhere to compliance all while boosting efficiency and decreasing operational costs.

According to Mortgage Choice’s newly appointed general counsel and company secretary, Scott Stierli – one of several new appointments made by the brokerage to bolster their compliance teams – technology already allows licence holders to automate some aspects of brokers’ compliance obligations, but it will play a larger role in increasing efficiencies and streamlining processes in the new best interests duty era.

“Brokers will be required to collect more information to prepare a loan application and be able to demonstrate to their customers and regulators that they have acted in their customer’s best interest,” Mr Stierli tells The Adviser.

“Technology can be used to automate and collate customer information efficiently. It will also play a big role in providing a robust system of record for all of the brokers’ actions and customer interactions.”

The brokerage has already begun work on its technology capabilities, rolling out its $3.4 million cloud-based broker platform in December 2018 to help brokers write loans more quickly by reducing data entry repetition and improving the overall customer experience.

By providing brokers with a platform that interacts with third-party applications, it allows for statement information to be electronically delivered, documentation to be provided by customers through the MyHub online customer portal, and customers to sign documents digitally, which all streamline the loan packaging process and make the process more efficient and transparent. The loan is then automatically tracked through the brokerage’s file manager software.

“Brokers who are using all of the tools have reported a measurable improvement in their efficiency with some increasing their productivity by a further 20 per cent,” Mr Stierli says.

“Our brokers tell us that the platform allows for better digital interaction with their customers and the tools help them simplify their processes.”

He adds that brokers should be using tools that allow them to easily demonstrate they have complied with the best interests duty requirements.

“For example, brokers could use tools that allow them to collect and store the documents required to prepare a loan application so they can demonstrate to the customer as well as regulators that they have met their compliance obligations,” he outlines.

Likewise, brokerage group Loan Market recently created a new compliance role, with former Westpac executive David McQueen taking up the new role of chief compliance and regulation officer in preparation of “2020’s compliance changes”, which the brokerage said provided a “strategic opportunity to challenge [Loan Market’s] own customer-experience standards with seamless and time-saving tech”.

Speaking of the tech, Loan Market’s executive director, head of advice and distribution and Wealth Market CEO, Matthew Lawler, tells The Adviser the major brokerage’s MyCRM platform will be its “one source of truth”.

By integrating other technological tools into MyCRM so all digital files and information are embedded into the technology platform, including Bank Connect Plus to help brokers analyse their clients’ living expenses, brokers can efficiently collect bank statements, gap statements, and summary pending reports, downloads clients’ transaction information, and organise those clients into categories, which enable to analyse their living expenses.

Records to protect brokers

Mr Lawler believes technology can assist brokers to digitally record and capture the information exchanged with clients about their goals, objectives, and home loan preferences.

“A lot of that will be in the broker’s head,” he says.

“I think technology can actually start to capture that information and provide a digital record of that so that if it ever needs to be referenced again the broker has that on file.”

Brokers can also use technology to record and explain the rationale behind their recommendations, which they can share with their clients. They can also retrieve these records should they ever be questioned on their recommendations.

“So, capturing goals and objectives upfront, and then having the rationale behind the recommendation very clearly displayed for the client to see are probably the two big changes we are going to see in the broker’s process,” Mr Lawler says.

Addressing broker pain points

The technology piece has been a big calling card for the fintech lenders and neobanks, too.

Neobank 86 400 has partnered with various software providers to facilitate faster processing times of home loan applications.

Ahead of its launch of mortgage products through the broker channel in November 2019, the group partnered with Simpology for broker lodgements, and Mogoplus for electronic capture of income and expenses and automatic mapping into credit decisioning rules, among others.

Simpology also has an e-lodgement platform called Loanapp, which reads a lender’s published electronic guidebook and provides the most up-to-date lender requirements to the broker.

According to 86 400 lending product lead Melissa Christy, the two main pain points for brokers in the traditional mortgage process are the long approval times and the amount of paperwork required by lenders in their applications.

Ms Christy tells The Adviser the neobank’s partnerships helped it fast track its launch to market while also providing new technology in the home lending process.

She says partnering with software providers like Simpology and Mogoplus allowed 86 400 to introduce a solution where it collects all income, expenses, assets, and liabilities electronically. It also does not require payslips or statements from the customer.

“We populate the application form for the broker. What this means is if the customer has accounts from ING and the Commonwealth Bank of Australia, and an American Express card, we can electronically collect all the transactions data,” Ms Christy says.

“We will then amalgamate that altogether to get a single view of the customer’s financial position. We then present that to the broker before they actually submit the application. This saves the broker time by populating the application form, providing them with a consolidated view of their income and expenses across all their different accounts that they may have.”

Ms Christy believes technological tools will efficiently collect accurate data on clients’ income and expenses with less likelihood of discrepancies.

“Many customers are multi-banked so because they use cards to tap everywhere, it’s harder for them to keep track of what they spend,” she says.

“These tools collate the information and show clients, for example, that they are actually spending $1,600 a month on groceries, not $1,000 as initially thought.

“It means brokers can have real conversations about what a client is actually spending and how clients can cut costs to afford a loan. It just means they’re working with facts rather than estimates.”

The need to have easy to access documentation and accurate records is becoming increasingly important for compliance reasons, Mortgage Choice’s Mr Stierli says, particularly when best interests duty legislation becomes operative on 1 July.

“Technology can be used to create an auditable record of interactions, which will allow brokers to not only defend their position to clients but also prove how they acted in the best interest of their customers,” he adds.

Broker willingness to adapt

While a percentage of brokers are willing to adopt new technological tools, they are now seeking training and an understanding of how the tools can be integrated into their business, Mr Lawler tells us, and the brokerage will therefore run roadshows in April to advise and coach brokers on how they should comply with best interests duty, including record-keeping obligations, and how they can use MyCRM in their businesses.

“A lot of it is giving them the opportunity to trial some of the new technology, implementing it into their business, and then getting the support that helps them use it to its optimal capability,” he tells The Adviser, suggesting that this is also a change management exercise, which might require businesses to change the way they operate.

Change is difficult for any industry, including broking, Mr Stierli outlines – but aggregators can play a key role in assisting brokers through these legislative and technological changes. It’s just up to brokers to ensure they adopt them.

“The role that aggregators play in overcoming this is to demonstrate to their brokers how technology can empower them,” he opines.

“We have developed a change management process to help educate brokers on the benefits of new technology, including how it can help them scale their businesses safely.”