Best interests duty file notes: what a mortgage broker's meeting record should show

Since 1 January 2021, mortgage brokers in Australia have worked under a best interests duty. Under sections 158LA and 158LB of the National Consumer Credit Protection Act 2009, a broker must act in the best interests of the consumer when giving credit assistance, and where there is a conflict, must give priority to the consumer's interests. ASIC's guidance for brokers, Regulatory Guide 273, explains what ASIC looks for when it assesses compliance with the duty, including the records it expects a broker to keep.

The duty itself is a principle, not a checklist. That makes the record more important, not less. When a file is reviewed, the question is whether the broker can show why the loan recommended was in this client's interests, given what the client said they needed. The answer has to come from the file, and most of what goes into the file starts in a client meeting.

This guide covers what a broker's meeting record should capture, where records most often fall short, and how to keep the record useful after settlement. Your aggregator or licensee may have its own requirements, and they come first.

What the duty asks of the record

ASIC's guidance does not prescribe a form. It says records can take many forms, including file notes and records of conversations, and that the types of record will vary with the recommendations and assistance given. It expects the records to show how the broker acted, including the options and recommendation given and the reasons why.

In practice that means a reviewer should be able to read the file and follow a line from the client's objectives and circumstances, through the options the broker looked at, to the loan recommended and the reasons it was chosen. If any link in that line is missing from the record, the broker has to rely on memory, and memory is not evidence.

A meeting record will not carry the whole of that line. The serviceability work, the lender comparison and the credit guide sit elsewhere in the file. But the meeting is where the client tells you what they need, and that is the part most often recorded too thinly.

What to capture in the client meeting

The first meeting with a borrower should produce a record of six things.

The client's objectives. Why they are borrowing, what they are buying or refinancing, and their timing. "Purchase" is not an objective. "Buying a first home in the next three months, settlement before the lease ends in February" is.

The client's requirements and preferences. Fixed or variable, an offset account, redraw, the ability to make extra repayments, a particular lender they want or want to avoid, and how much those preferences matter to them. Record the reason where the client gives one, because a preference with a reason is easier to weigh against cost later.

The client's financial situation. Income, expenses, existing debts and commitments, and anything the client expects to change, such as parental leave or a change of job. Changes the client tells you about are easy to lose because they are not yet in any document.

What you discussed about options. At a high level, the kinds of loans and lenders you discussed and any trade-offs you explained, such as a lower rate against the loss of an offset account.

What you explained about cost and risk. The effect of rate changes on repayments, the cost of features, and anything else you warned the client about.

What happens next. The documents you need, who is providing them and by when, and the next meeting.

Where broker meeting records fall short

Three gaps come up more than any others.

The objective is recorded as a transaction rather than a goal. "Refinance" says what the client is doing, not why. A client refinancing to reduce repayments, one refinancing to release equity for a renovation and one refinancing to consolidate debts need different loans, and the record should say which client this is.

Preferences are recorded without weight. A note that the client "wants an offset" does not tell a reviewer whether that was a firm requirement or a passing interest, which matters when the recommended loan costs more because of it.

The record of the meeting and the record of the recommendation were written at different times by different people. The meeting note is thin because the broker expected to remember, and the recommendation was written later from the fact-find. The two should tell the same story, and the meeting note is the one that shows the client's own words.

When preferences change

Clients change their minds between the first meeting and lodgement. A client who wanted a fixed rate decides on variable after a conversation with a family member. A client who did not care about an offset account learns what one would save them.

A change like that is exactly what a reviewer looks for. If the final recommendation does not match the preferences recorded at the first meeting, the file needs to show when the preference changed, why, and that you discussed it. Record the change in a note of the conversation where it happened, even if it was a five-minute phone call.

Where rough figures fit

Clients often ask for a quick figure in the meeting: what the repayments would be, roughly how much they could borrow, or how two lenders compare. A rough figure helps the conversation, but it is not a lender's assessment, and the record should not make it look like one.

Briefi includes rough repayment, borrowing, lender comparison and equity calculators on the meeting page. They are labelled as estimates, and a figure can be added to the meeting notes so the record shows what the client was shown and that it was an estimate. They are not credit advice and do not replace your serviceability work.

After settlement: the record keeps working

The best interests record is usually thought of as a pre-settlement job. The client relationship does not end at settlement, and neither does the usefulness of the record.

A fixed rate expires. A client's circumstances change. The loan that was right three years ago may not be right now, and the conversation about it should start before the client receives a letter from their lender, not after.

A loan register that holds each client's settled loans, with the fixed-rate expiry date, turns that into a routine. In Briefi's loan register, a settled fixed or split loan is flagged as due for review within 90 days of its fixed-rate expiry, so the conversation can be booked in time. When that review meeting happens, it gets its own record, starting the same line again: what the client needs now, what you considered, and why.

A checklist for the meeting record

Before closing the file for a client meeting, check that the record shows:

The date, attendees and how the meeting was held.

The client's objectives, with timing.

Requirements and preferences, with the reasons the client gave and how important each one is.

The client's financial situation, including changes they expect.

The options and trade-offs discussed.

Costs and risks explained, and any rough figures given, marked as estimates.

Any change of preference since the last meeting, with the reason.

Actions, each with an owner and a due date, and documents still outstanding.

A record that ticks every line will not prove on its own that the duty was met. It does give the rest of the file something solid to build on, and it gives a reviewer a clear line to follow.

This article is general information about record keeping. It is not legal or compliance advice. For how the duty applies to your business, speak to your aggregator, your licensee or a compliance adviser.

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