Fns40815 Fnsfmb402 Learner Guide v1.0

FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING
FNSFMB402 Identify client needs for broking services
Learner Guide
FNS40815_ FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

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Learner Guide FNSFMB402 Identify client needs for broking services
Unit Description This unit describes the skills and knowledge required to determine clients’ finance
broking requirements and explain capabilities, legal and compliance related issues so
clients are aware of their rights.
Target Group It applies to individuals who are skilled at building relationships and who use specialised
knowledge and analytical skills to provide advice and a range of services for clients.
By the end of this unit, students will be able to:
Learning Outcomes
→ Educate clients and build rapport
→ Determine clients’ existing financial situation
→ Determine client goals and priorities with respect to broking services
→ Prepare necessary documentation follow up
Purpose of this Learner Guide
This learner guide provides students with guided and referenced study notes to assist student learning
of the competency unit requirements. When completed, this learner guide, along with tutor provided
support material and your own research will combine to represent a continuous body of evidence of
the work you have done and the skills you have learned.
The study notes provided in this learner guide are structured as follows:
• Learning Outcome and Performance Criteria reference
o Study Notes
 Worked examples
Students are required to access relevant Competency Unit outlines within their course to understand
the entire unit requirements. Students are required to read all notes and worked examples provided
and supplement these notes with tutor provided support material and own research where required.
It is highly recommended that students self-check their own learning of performance criteria by
completing all learning activities (answering in the spaces provided), checking own answers with the
answers provided at the end of the workbook and asking for assistance as required.
Learner Guide support material
The source references noted in the learner guide provide a good starting point for the student to
undertake their own research by accessing full articles and reports to extend their reading.
NOTE: The learner guide study notes are not provided to be definitive but as a guide. Students are
required to supplement learner guide notes with their own research
FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

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Contents
1. Educate clients and build rapport ....................................................................................... 4
1.1 Explain the finance and mortgage broking process to clients in a clear and unambiguous way,
and clarify the background, credentials and role of the broker to build rapport ...............................5
1.2 Present the services, values and capacity of the organisation to clients and confirm client
understanding of fees and charges .................................................................................................. 7
1.3 Identify and confirm procedures for complaints handling and resolution with clients .............. 10
2. Determine clients’ existing financial situation .................................................................... 11
2.1 Ask clients to disclose relevant facts to begin determining their personal and financial situation
and establish clients’ current income, expenditure and liabilities ................................................... 11
2.2 Determine current investment and assets position of clients and conduct initial analysis of
clients’ financial position based on extent of client disclosure ....................................................... 12
3. Determine client goals and priorities with respect to broking services ................................. 15
3.1 Ask clients to clarify their product expectations ....................................................................... 15
3.2 Comprehensively explore differences in what products provide and what clients expect, and
respond to client concerns, if any, promptly and appropriately ..................................................... 17
3.3 Establish and confirm client priorities ....................................................................................... 18
3.4 Seek specialist advice where necessary or refer clients to appropriate sources where required
advice or services cannot be provided ............................................................................................ 19
4. Prepare necessary documentation follow up...................................................................... 21
4.1 Document and check all relevant client facts, information, financial and personal histories and
manage confidentially in accordance with organisational policy and guidelines, and relevant
legislation and industry codes of practice ...................................................................................... 21
4.2 Create or update client records where necessary in a clear and concise format, and file securely
in a format and location readily accessible to other appropriate advisers ...................................... 23

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1. Educate clients and build rapport
“If people like you, they’ll listen to you, but if they trust you, they’ll do
business with you” – Zig Ziglar.
What is rapport building?

In sales, rapport is used to build relationships with others quickly and to gain their trust and confidence.
It is a very powerful tool that veteran salespeople naturally employ, which allows them to close more
deals with less effort – Source: Wikipedia.
How to establish rapport with clients

Written by the Chartered Financial Analyst (CFA) Institute, below are tips on how to improve
relationships with clients. Whether you are working as a broker, adviser, client services officer,
salesperson, consultant, whatever your title is, you will at one point need to speak with a client and
wish to build good rapport with them:
→ Follow up in writing – after every client discussion, a financial broker or adviser should send a
letter outlining what has been discussed. And at least every quarter, send a personal letter. Put
things in writing because people forget. In the letter say, “Here are the things we have done
over the last quarter to get you where you need to go”. That way even if it is work the adviser
does behind the scenes, they are helping clients understand their value to the clients.
→ Don’t be afraid to deliver bad news – extremely important especially for someone with a
sales/marketing background often taught to not deliver bad news, which is unrealistic. For
example, upon loan refusal, the broker should let the client know of the outcome and explain
on why the loan may have been rejected and problem solve for the client e.g. by applying to
other lenders or by asking the client to reduce her debt. Being honest means client can’t fault
the adviser for misleading them.
→ Be in constant communication, especially in volatile times – a broker needs to ask their clients:
“How would you like us to contact you? E-mail? A phone call? How would you like us to bring
you up to date with what is going on with your home loan application?”
→ Listen to clients – financial brokers need to let their clients know that they hear them, that they
understand them, that they know what the clients are asking for and that they will respond.
Instead of managing clients by talking at them, an adviser needs to manage the clients by
letting them talk to the adviser.
→ Keep it simple and relevant – clients don’t need to know how to make a watch; they just need
to know what time it is. Brokers need to be able to synthesize a lot of complex information so
clients understand.

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1.1 Explain the finance and mortgage broking process to clients in a clear and
unambiguous way, and clarify the background, credentials and role of the broker to
build rapport
According to the Australian Securities and Investments Commission (ASIC) credit providers and
brokers must be licensed in order for them to operate legally in Australia. In addition to the licensing
requirement, a responsible finance and mortgage broker should take the initiative to explain to their
clients what may be involved in the finance and mortgage broking process including:
Assessment of loan and pre-approval – credit assistance providers must make a preliminary
assessment and credit providers must make a final assessment that credit contract the client applying
for is 'not unsuitable' for the client before they offer the loan.
A pre-approval is simply a lender’s evaluation on how much a client can borrow based on their credit
history and income. When applying for a pre-approved loan the client will need to provide some
additional documentation, such as:
→ Proof of deposit
→ Proof of income
→ Monthly expenses and other outgoings such as loans, credit cards and store cards.
→ Obtaining a pre-approval is free and is generally valid for 3 months.
For more information on loan pre-approval visit:

http://www.yourmortgage.com.au/article/the-importance-of-getting-a-preapproved-
loan-180790.aspx
Complaints procedures – mortgage brokers are subject to have dispute resolution procedures in
place. Clients are to be informed how and where to lodge a complaint such as by giving contact details
of the complaints officer and the steps involved including how long until the complaint can be resolved.
With regard to external disputes, ASIC approves the following external dispute resolution (EDR)
schemes for clients whose complaints have not been resolved:
→ Financial Ombudsman Service (FOS)
→ Credit and Investments Ombudsman (CIO)
→ Superannuation Complaints Tribunal (SCT)
For more information on dispute resolution procedures visit:

https://www.moneysmart.gov.au/tools-and-resources/how-to-complain
Exchange of contracts – once a buyer (client) and a property seller each sign a contract of sale and
exchange these contracts of identical terms, this process is called an exchange of contracts (EOCs).

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One aspect to highlight in an exchange of contracts is that EOCs differs between private sales and
auctions. The contract is legally binding once signed by the seller and ensures the property isn’t sold
to a higher bidder. Below are some of the key points of difference:
Private Sale Auction

Deposit due after offer has been accepted and Deposit due immediately after
generally at time of signing contract. auction, at time of signing contract.
Contract can be negotiated and conditional (e.g. Contract is generally unconditional.
subject to finance approval or building
inspections).
A cooling off period* may apply (differs by state). No cooling off period.
*) When a client buys a residential property in NSW, there is a 5 business-day cooling-off

period after the EOCs. During this period, the client may get out of the contract as long as a
written notice is provided. The cooling-off period starts as soon as the client and the seller
exchange and ends at 5pm on the fifth business day after exchange.
For more information on cooling off periods:

http://www.finder.com.au/cooling-off-periods-when-buying-a-house
Follow-up service and information – Following a client’s purchase, a mortgage broker will continue
to follow up with the home loan and ensure it still suits the client requirements now and in the future.
Interview – at a broker interview a client can expect to be greeted and explained the basics of how the
home loan application process works, what the expectations are for everyone and questions on the
client’s aspirations. The client may then be asked to share information about their financials and
budget so as to see whether the client qualifies for what it is they are after. A mortgage broker may
advise the client to bring the following to the interview:
→ Proof of identity and photographic identification, such as driver’s licence or passport
→ Proof of your income such as payslips if regularly employed, financial statements if self-
employed, a letter from Centrelink if receiving a pension/family allowance or a letter from real
estate agent if receiving rental income.
→ A record of what the client owes, including one month’s statements for any credit cards or any
existing personal loans.
Letter of offer – When the client is happy to proceed with the loan and is confident that they
understand and agree to the conditions, they should sign and return the documents to their mortgage
broker, or as the lender requests. The mortgage broker should remind the client that they will be
entering into a legally binding contract and that the client should ask questions if there are things in
the contract they do not understand.
A mortgage broker can further explain the following topics in more detail:
→ Needs analysis
→ Regulators’ guidelines
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→ Relevant industry standards and codes of conduct
→ Settlement
→ The overall loan process
→ Unconditional approval
One of the main components in rapport building is for a broker to be able to clarify their background,
credentials and their role as a broker including:
→ Broker commitment to service – a good broker should let his client know of what to expect
from using the broker’s service including the broker’s service commitment, information
regarding panel of lenders the broker has access to, protection regarding client privacy, and
dispute resolution procedures.
→ Educational qualifications – in Australia, the minimum education requirement for someone to
become a mortgage broker is to obtain Certificate IV in Financial Services (Finance/Mortgage
Broking). Clearly, a broker should not lie about their qualifications as this is against the law and
will likely disadvantage the client.
→ Participation in a related professional association – such as if the broker is a member of the
Mortgage Finance Association of Australia (MFAA) or the Finance Brokers Association of
Australia (FBAA), two major professional associations for mortgage brokers in Australia.
→ Responsibilities of the broker – a mortgage broker should explain to clients of their roles and
responsibilities, for example attending to initial customer enquiries, completing loan
applications, collecting supporting documents, lodging applications with either credit
departments or lending institutions and following the loan through to ensure settlement.
Roles played by intermediaries such as lenders – a good broker would help their clients understand
how a mortgage broker can assist in a home loan application, who are the lenders and other parties
that may be involved in the process including their roles such as solicitor, lawyer, property valuer, real
estate agent, etc. For example, the role of a property valuer/appraiser is to value the purchased
property and this information helps the lender in determining whether the loan is worth lending.
1.2 Present the services, values and capacity of the organisation to clients and confirm
client understanding of fees and charges
A good mortgage broker needs to present clearly services, values and capacity of the organisation
they work for including:
→ Organisational commitment to service – a mortgage broker needs to be able to let client know
the service commitment of the organisation they work for, for example mortgage brokers
working for a particular organisation will help their clients understand their loan options and
choose a loan that is right for the clients’ needs.
→ Pricing and fee structures – to avoid conflicts of interest a mortgage broker should disclose to
their client if a lender pays the broker a commission.
→ Printed organisation information such as:
o History
o Mission statement
o Client charter

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Range of services provided – typically a finance broker negotiates with banks, credit unions and other
credit providers on behalf of their clients to arrange loans, for example home loans. In addition,
finance or mortgage brokers can offer clients a variety of loan options, help select a loan and manage
the process through to settlement.
Relevant industry standards and codes of conduct – for example a broker who is a member of the
Mortgage & Finance Association of Australia (MFAA) must follow the MFAA Code of Practice, a
developed statement of principles dealing with industry practices designed to set a standard of good
industry practice and fair dealing between consumers and MFAA Members.
More information to present to clients can include:

→ Relevant legal requirements.
→ The relationship between ethics and regulatory requirements such as good faith.
→ Types of classes of mortgage products.
→ What to expect from broker.
It is important for a mortgage broker to confirm client’s understanding regarding fees and charges
including:
→ Commissions from lenders – a broker's fee or commission for arranging a loan is often paid by
the credit provider such as a bank whose products they sell. Different credit providers pay
different commission levels. A mortgage broker should let their clients know of the fee
structure of their service as this can potentially influence what loans the broker recommends
to the client. Sometimes a broker will charge a fee directly (instead of, or in addition to, the
credit provider's commission).
→ Commissions paid to franchisees – some mortgage brokers operate on franchisor models e.g.
Mortgage Choice and the Commonwealth Bank-controlled Aussie Home Loans, where they
assign franchisees or brokers the right to market and distribute their branded services and use
their business names for a fixed period.
→ Loan establishment fees – also called 'application', 'up-front', 'start-up' or 'set-up' fees. An
establishment fee is a one-off payment when a client starts their loan. According to ASIC, if a
client is not charged an establishment fee, they may pay higher ongoing fees. Australian law
requires financial institutions that charge this fee to disclose the rate and amount in loan
advertisements. For example, CBA:
Source: https://www.commbank.com.au/personal/apply-online/download-printed-forms/003-750.pdf

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→ Loan value fees – an example of loan value related fees is lenders' mortgage insurance (LMI), a
type of insurance that credit providers take out to protect themselves from borrowers not
being able to repay the loan. The fee the lender charges a client for LMI can be many thousands
of dollars and is usually added to the home loan amount. Credit providers normally charge the
client this one-off fee to cover this insurance if the client borrows more than 80% of the value
of the property. Whether a client is charged LMI will also depend on loan to value ratio (LVR),
a percentage that is calculated by dividing the amount of home loan by the purchase price (or
appraised value) of the property. Generally, the higher the equity the client has in the property
(or the lower the LVR), the less chance the lender will charge a fee for LMI, and where they do,
the less the fee will be.
For more information, see the Insurance Council of Australia's FAQs on lenders
mortgage insurance: http://understandinsurance.com.au/types-of-
insurance/lenders-mortgage-insurance#tab-1
Trailing commissions (TC) – is an annual fee paid to intermediaries such as brokers by credit providers
such as banks, for recommending the providers’ loan products. So, for a 30-year home loan, the
broker will receive an annual payment (TC) for the life of the loan, i.e. 30 years.
Clients have the right to know in writing any fees and commissions a broker receives and the broker
must be ready to provide this information. Some brokers offer 100% refund on commission.
The table below shows how trailing commissions vary from bank to bank in Australia:
Year 1 Year 2 Year 3 Year 4 Year 5+

ANZ 0.15% 0.15% 0.15% 0.20% 0.20%
Bankwest 0.00% 0.15% 0.20% 0.20% 0.25%
CBA 0.00% 0.20% 0.20% 0.20% 0.20%
NAB 0.15% 0.15% 0.20% 0.25% 0.30%
ING Direct 0.15% 0.15% 0.15% 0.20% 0.20%
St. George 0.15% 0.15% 0.15% 0.15% 0.15%
Suncorp Bank 0.15% 0.15% 0.15% 0.20% 0.20%
Westpac 0.15% 0.15% 0.15% 0.15% 0.15%
Macquarie 0.15% 0.15% 0.18% 0.20% 0.23%
Source: http://www.businessinsider.com.au/chart-heres-what-banks-pay-mortgage-brokers-to-get-your-
home-loan-2014-8

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1.3 Identify and confirm procedures for complaints handling and resolution with
clients
Procedures for complaint handling and resolution may include:
Contact with client relations officer – ASIC’s RG165 requires that financial service licensees such as
mortgage brokers and credit providers have in-house processes to handle complaints received about
their products and services, and even how they handle complaints. For example, by letting the client
know how to file a complaint (by email or phone or mail) and the complaint officer’s contact details.
Contacts with the mortgage industry ombudsman – some brokers are part of an external dispute
resolution scheme, such as the Credit Ombudsman Service or the Financial Ombudsman Service, both
approved by ASIC.
In-house procedures – for example by letting the client know when they can expect to hear feedback
(usually in writing) from the broker, i.e. how many days after the complaint is lodged. And where to
escalate the complaint if the client is still unsatisfied with the broker’s response.
Example: Dispute resolution procedures of Mortgage Direct, a member of the

Mortgage Finance Association of Australia (MFAA):
http://mortgagedirect.com.au/dispute-resolution-2/

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2. Determine clients’ existing financial situation
2.1 Ask clients to disclose relevant facts to begin determining their personal and
financial situation and establish clients’ current income, expenditure and liabilities
Most standard home loans are regulated under the National Consumer Credit Protection Act (NCCP),
legislation that is designed to protect consumers & ensure ethical & professional standards in the
finance industry, through the National Credit Code (NCC).
Under the Act, mortgage brokers and loan officers are to:
→ Make reasonable enquiries as to the client’s financial position, requirements & objectives.
→ Take reasonable steps to verify the client’s financial position.
→ Conduct preliminary assessment – with the information gathered from steps one and two, the
mortgage broker must make a preliminary assessment as to which loan(s) are appropriate for
the client, before recommending a loan product.
Applying for a home loan is a long and complex process, from the time a mortgage broker submits an
application on behalf of the client, collects the supporting documents, have the client’s employment
checked to finally have the lender approve the loan.
To ensure a client’s home loan application is running smoothly, the broker must first gather from the
client relevant information including:
Age – evidence of ID including primary and secondary such as passport, drivers licence and Medicare
card or utility bill. In Australia, there isn’t necessarily an age limit for taking out a home loan. But
depending on how old the client is, lenders may implement certain provisions. For example, a
borrower of age 50 years or older will often be required to provide additional information as to how
she is planning to repay the loan after retirement without having to sell the property, this is what
lenders call an exit strategy.
Expenses – fixed and variable including credit card expenses, school payments, or maintenance
expenses.
Debt position – other loans the borrower might have including credit card, vehicle loan, and other
personal loans. Lenders often base how much a borrower can owe on the borrower’s current debt
balances.
Family income or support – e.g. lenders want to know if the borrower still relies on his family for
financial support.
Savings history – usually statements of savings account(s) held with other lenders or financial
institutions covering a period of the last three months.
Investment history – value of significant pieces of personal property, including shares, cars and other
forms of investments. In the event where the borrower lost his employment, will there be any other
sources of income to repay the loan?

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Other relevant facts regarding the client may also include:
Rental properties owned – copy of the current residential tenancy agreement and recent bank
statements showing rent payments.
Marital status – marriage certificate or divorce certificate.
Centrelink Payments – a letter from Centrelink or Department of Social Security or equivalent

detailing current entitlements.
Discussed above are general facts most lenders will ask their clients to provide for a home loan
application. Note that different lenders may ask for different documentation.
Now review the St. George loan applications checklist: “stg-loanapp-chklist’, located
in the Learner Guide Resources folder
2.2 Determine current investment and assets position of clients and conduct initial
analysis of clients’ financial position based on extent of client disclosure
A broker can determine current investment and assets position of their client by asking for the
following documents:
→ Current balances and recent statements for any bank accounts, including checking and
savings.
→ Council rates notice for any owned properties, such as investment properties.
→ Most recent account statement showing current market value of any investments such as
stocks, bonds or certificates of deposit.
→ Documentation showing interest in retirement funds.
→ Face amount and cash value of life insurance policies. Face amount is the basic amount the
beneficiary would receive when the insured dies, whereas cash value is the money the life
policy earns through investments by the insurer.
Following information gathering on the client’s current investment and assets position, a mortgage
lender or credit provider will then conduct an analysis on the client’s financial position by employing
tools such as the 5C’s of lending, see figure below:

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When lenders refer to an applicant’s character, they are essentially looking at that person’s credit
history.
Collateral is what the borrower is offering the lender as security over the loan. For investors or home
buyers, this would be some type of property. Lenders favour certain properties over others when it
comes to assessing a loan application.
A borrower’s capacity to repay the loan is commonly referred to as serviceability; where the bank
looks at employment income, either PAYG or self-employed, any rental income and all assets and
liabilities.
Capital or deposit is often referred to as the Loan to Value Ratio (LVR). If a client is seeking an 80%
LVR or lower (meaning they have a 20% plus deposit), then credit is relatively easy to come by.
However, if the LVR exceeds 80%, then the application has to be submitted to a mortgage insurer and
they are currently very risk adverse.
The last “C” conditions are outside circumstances, such as the economy and job market, that can
influence a borrower’s ability to repay a loan. However, this category also includes how the borrower
intends to use the loan such as purchasing an existing property or refinancing or housing renovation.
To summarise how lenders might use borrower’s information and carry out a loan assessment see
schema below:
Source: http://propertyupdate.com.au/how-do-the-banks-assess-your-application-part-1/

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Note that additional enquiries would need to be made if the client (borrower) provides information
that is inconsistent. This may include information that conflicts with information already held about
the client or information that appears outside the normal ranges, for example income well above that
expected for a particular occupation.

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3. Determine client goals and priorities with respect to broking services
3.1 Ask clients to clarify their product expectations
Let’s remind ourselves what finance brokers do and services they offer:
→ Finance brokers are persons or companies that perform transactions on your (client) behalf.
→ They also serve as the link or mediator between client and the lender.
→ Financial brokers must first determine the client’s borrowing needs and repayment ability,
choose the appropriate loan, and oversee the entire loan’s progression through to settlement.
Financial brokers provide a wide range of broking services to cater clients with different goals and
priorities including but not limited to:
Personal loans – if a client is looking to borrow money for various personal reasons like paying for
tuition or renovating your home, then a financial broker can assist the client in finding the right
personal loan.
Car loans – financial brokers can also help look for a car loan whose monthly payments are just right
for the client.
Home loans – finding the right home loan can be a daunting task with all the details involved. A
financial broker can help with all the difficult legwork.
Business loans – a client may be looking to borrow some money to develop a business.
Reverse mortgages – this is a type of mortgage that lets a client borrow money against the value of
their home. A finance broker can assist in looking for a lender willing to lend this type of loan.
Equipment leasing – as the name suggests, equipment leasing is when the client rents equipment for
a monthly fee (instead of buying it).
Other services financial brokers may offer:
→ Commercial property finance
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→ Debtor finance
→ Chattel finance
A mortgage broker must make reasonable inquiries about their client’s objectives and expectations
for example:
→ The amount of credit required or maximum amount of credit sought i.e. desired home loan
amount.
→ How long the credit is required – e.g. how long is the client planning to repay the home loan?
20 years? 25 years? 30 years?
→ The reason and benefit the consumer is seeking the credit – e.g. for purchasing a new property
or an existing one? To purchase a house for investment through rental income? For home
renovation? Etc.
→ If there are particular features or flexibility the client would like in the product – e.g. some
clients may wish to obtain honeymoon rates from the lender i.e. lower introductory rates for a
short period of time, some borrowers prefer fixed to variable interest rates and vice versa,
some may need to set up an offset account or a redraw facility.
If the client understands the cost and any additional risks of these features – each home loan feature
carry with it its own costs and risks, e.g. a client who has decided to sign up for a home loan with
variable rate will need to pay more interest payments if interest rates increase.
So far, we have seen a range of loan products with focus on mortgage loans. However, some clients
borrow money for investment purposes and thus have their own investment goals and expectations.
All clients have their own approach to investing:
Speculative – the act of trading in an asset, or conducting a financial transaction, that has a significant
risk of losing most or all of the initial outlay, in expectation of a substantial gain.
Passive – also known as buy and hold, passive investors will purchase investments with the intention
of long-term appreciation and limited maintenance.
Active - active investing is highly involved. Unlike passive investors who invest in a stock when they
believe in its potential for long-term appreciation, active investors will typically look at the price
movements of their stocks many times a day. Typically, active investors are seeking short-term
profits.
Income expectations – generally there are two sources of investment income one from payments
such as interests on savings account, bond coupon payments or stock dividends, and second from
capital appreciation such as an increase in price of a property, share, or any other financial
instruments.
Long-term or short-term goals – a client’s short-term goals may be to accumulate wealth and buy a
house and long terms goals could be to send their children to college and to comfortably retire.
Return expectations – returns and risks cannot go separate ways, for every additional return
expected, there is an additional risk added to the client’s portfolio. A finance broker should discuss
with the client and find out about the client’s risk appetite.
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3.2 Comprehensively explore differences in what products provide and what clients
expect, and respond to client concerns, if any, promptly and appropriately
In the previous section we have discussed the importance of clarifying with the client of their
expectations.
One of the key roles a finance or mortgage broker plays is to provide the client with a range of options
and help decide which loan(s) that is most suitable for the client.
After learning the client’s background, a mortgage broker will typically engage in research based on
the client’s information and consults with a number of credit providers and finally arrives at several
loan products to recommend. This process can be simplified in the illustration below:
Below shows a list of different mortgage products to suit different client needs, each with its pros and
cons:
→ Basic Home Loan – for clients looking for a ‘no frills’ mortgage with low interest rates. What it
lacks in features it makes up for in lower interest rates.
→ Fixed Rate Home Loan – for clients who consider being able to budget around their regular
mortgage repayments a priority. This way their interest rates will be locked in place for a set
period and repayments will remain consistent during this time. Clients will have the option to
fix rate from one to five years, depending on the lender and the client’s preferences.
→ Variable Rate Home Loan – offers borrowers more flexibility and generally lower rates than
fixed home loans. However, borrowers must be warned of possibility of rate increase which
will translate to higher repayments.
→ Low-Doc Home Loan – a low documentation home loan is a great option for self-employed or
small business owners who don’t have the suitable paperwork required to prove their income.
→ Interest Only Home Loan – this home loan is particularly attractive for both investment
property buyers and home buyers who only want to pay the interest on the balance. Clients
who don’t seem to plan their finances carefully are not to be recommended this product, as
they might fail to make the principal payments when the time comes.
→ No Deposit Home Loan – if the client doesn’t have the funds saved for the initial 10 to 20%
home loan deposit, then they could consider a no deposit home loan. This means the client will
be borrowing the full purchase price of the property and as such their loan-to-value-ratio would
be 100%, which will most likely incur extra charges in the form of lenders mortgage insurance,
which can cost thousands. In this case the client may require a guarantor, i.e. someone else
putting up equity to guarantee the client pay on time.
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→ 2nd Mortgages - Second mortgages are called subordinate because, if the loan goes into
default, the first mortgagee gets paid out first before the second mortgagee. This makes
second mortgages riskier for lenders and generally means that second mortgages come with
higher interest rates than first mortgages.
As you can see there are a great variety of home loan products with different features, pros and cons.
A mortgage broker must ensure what the client expects match with the product recommended and
that the client is eligible for the product, i.e. the loan product must be ‘not unsuitable’ for the client.
In any stage of the loan process, the client may have concerns that need to be addressed promptly
and appropriately for example:
→ Possible accrued debt – the client may be struggling with utility bills (electricity, gas, phone or
water), credit cards or loan repayments. In this case, the first step is to advise client to talk with
the credit or service provider and let them know they are experiencing financial hardship.
→ Making repayments – most clients cope with their mortgage repayments but when something
happens out of the blue, they can struggle. Breaking up with their partner, losing their job or
illness can play havoc with the client’s finances. If the client has missed a mortgage repayment,
the broker can help talk to the lender to perhaps alter the loan terms, e.g. from monthly to
quarterly repayment.
→ Resistance to organisation or broker – sometimes a client may feel unsatisfied with the service
provided by the mortgage broker. In this scenario, the mortgage broker should try to solve the
client’s problem immediately or inform client on how to lodge a complaint through the internal
dispute resolution procedure.
→ Risk – for example interest rate risk when the client is signing up for a variable home loan. If
the client has started servicing the debt, the broker can help the client switch to a cheaper loan
available in the market or negotiate with the current lender for an alternative.
→ Uncertainty about the product – it is not uncommon for a client to doubt a loan product as
there are thousands in the market and all have different features, fees and essentially pros and
cons. The mortgage broker needs to explain to the client in detail of what possible options are
available based on the client’s circumstances and help clarify any questions or concerns the
client might have.
3.3 Establish and confirm client priorities
Under the National Consumer Credit Protection Act (NCCP), mortgage brokers are obliged to follow
responsible lending practices that require them to:
1. Make reasonable enquiries as to the client’s financial position, requirements & objectives.
2. Take reasonable steps to verify the client’s financial position.
These two steps are required before a mortgage broker or lender can proceed to product
recommendation.
Why the need to establish and confirm client priorities?

→ The potential impact on the client if they enter into an unsuitable credit contract.
→ The complexity of the credit contract – the more complex the mortgage loan, the more need
to establish and confirm client priorities.

Page 18 of 24
→ The client’s capacity under the credit contract – capacity is often tied to loan-valuation-ration
(LVR), deposit and whether mortgage insurance is needed.
→ New clients – a mortgage broker will need to do more homework with new clients, learn about
the client’s background, financial circumstance and what the client is after.
How to confirm client priorities including objectives and requirements?

As stated previously, the broker must first make reasonable inquiries about the client’s requirements
and objectives. Reasonable means the more complex the case, the more scrutiny required. Examples
of client’s objectives and requirements (as elaborated in section 3.1):
→ The amount of credit required or maximum amount of credit sought.
→ How long the credit is required.
→ The reason and benefit the client is seeking the credit.
→ If there are particular features or flexibility the client would like in the product.
→ If the client understands the cost and any additional risks of these features.
Take reasonable steps to verify information provided by the client. Reasonable here means the
mortgage broker would be expected to make less detailed enquiries for a more basic credit contract
such as a small person loan (where the loan is small relative to the consumer’s capacity to pay) than
for a mortgage (where the amount may be significant and the capacity for the consumer to repay may
possibly incur substantial hardship).
Information that could be used by a mortgage broker or credit assistance provider to verify a client’s
financial situation includes but is not limited to:
→ Recent payroll receipts or payslips and confirmation of employment for PAYG employees.
→ Recent income tax returns, a statement from their accountant and Business Activity
Statements for self-employed persons.
Failing to confirm client priorities would mean additional inquiries need to be obtained by the
mortgage broker.
3.4 Seek specialist advice where necessary or refer clients to appropriate sources
where required advice or services cannot be provided
Individuals who provide financial advice and services are subject to the Corporations Act 2001’s best
interest duty.
Under this legislation a finance broker/adviser must:

→ Act in the best interests of their clients (section 961B).
→ Provide appropriate advice (section 961G).
→ Warn the client if advice is based on incomplete or inaccurate information (section 961H).
→ Prioritise the client's interests (section 961J).
When dealing with a client’s request, a mortgage broker must consider the following:
→ Assess whether the broker has the expertise to provide the advice sought and, if not,
decline to give the advice.

Page 19 of 24
→ Seek specialist advice e.g. a mortgage broker can help refer a solicitor to the client to
review the contract of sale and other legal documents, something that is outside of the
broker’s expertise.
In short, this process can be summarised as follows:
Now review the ASIC Guide: ‘RG 244”, located in the Learner Guide Resources folder

Page 20 of 24
4. Prepare necessary documentation follow up
4.1 Document and check all relevant client facts, information, financial and personal
histories and manage confidentially in accordance with organisational policy and
guidelines, and relevant legislation and industry codes of practice
Why the need for documentation?

ASIC’s Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees
(including finance and mortgage brokers) who give personal advice to retail clients.
The financial services licensee must keep the records required for 7 years after the day the personal
advice was provided to the client.
Keeping records will help licensees to supervise their representatives, including advice providers,
when they provide advice to clients.
If a mortgage broker mishandles the personal information of their clients, it can cause a financial or
reputational loss to the client. In turn, this can also lead to a loss of trust and considerable harm to the
mortgage broker’s reputation.
A significant breach may result in a loss of customers or business partners and revenue.
The financial services licensee must ensure that records of the following matters are kept in relation
to the provision of the personal advice:
→ To prove that the best interests duty has been satisfied—the information relied on and the
action taken by the provider that satisfies the steps in that subsection;
→ The advice given, including the reasons why it would be reasonable to conclude that the advice
is appropriate to the client, had the provider satisfied the best interests duty;
→ Where the provider knows, or reasonably ought to know, that there is a conflict between the
interests of the client and the interests of an adviser the information relied on and the action
taken by the provider to indicate that the provider has given priority to the client’s interests
when giving the advice.
The NCCP Act also requires documentation of inquiries, verification and assessment including but not
limited to:
→ Information about the inquiries made.
→ Documents evidencing the inquiries made.
→ Information about verification procedures.
→ The inquiries made into the client’s financial situation.
→ The verification process that was followed and the assessment of unsuitability.
An absence of these documents to establish that inquiries were made and verified and an assessment
was made that the facility was not unsuitable will affect a broker‘s ability to satisfy the Conduct
Obligations.

Page 21 of 24
Personal Information
Personal information security is about more than just ensuring compliance with the relevant
legislation.
The benefits of applying personal information security to business practices can include more efficient
processes. It also reduces the risk of privacy breaches and the time and resources involved in
addressing any breaches that do occur.
Credit providers including mortgage brokers must preserve their client’s confidentiality as stated in
the Privacy Act 1988 – an Australian law which regulates the handling of personal information about
individuals. This includes the collection, use, storage and disclosure of personal information, and
access to and correction of that information.
Section 6 of the Privacy Act defines ‘personal information’ as ‘information or an opinion about an
identified individual, or an individual who is reasonably identifiable e.g. a client's name and address,
medical records, bank account details, photos, videos and even information about what the client likes,
their opinions and where they work.
Cases where the Privacy Act may not apply to lenders:

→ Where disclosure is compelled by law.
→ Where there is a duty to the public to disclose.
→ Where the lender’s interests require disclosure.
→ Where disclosure is made with the client’s express or implied consent.
A mortgage broker who is handling personal information of their clients should consider how they will
protect this information during the stages of its lifecycle. See information lifecycle illustrated below:
1. Consider whether
information collection &
retention is necessary.
2. Plan how client

information will be
5. Destroy client handled by embedding
information if no longer privacy protections into
needed. design of handling
practices.
4. Take steps to put into

place strategies to 3. Assess risks associated
protect client with collection of client
information. information.
Source: http://www.oaic.gov.au/privacy/privacy-resources/privacy-guides/guide-to-securing-personal-information

Page 22 of 24
In addition to the Privacy Act discussed above, depending on the services offered and other
circumstances finance or mortgage brokers may be subjected to the following legislation and industry
codes of practice in relation to client record keeping:
→ ASIC’s National Consumer Credit Protection Act 2009 (NCCP) – responsible lending practices.
→ Corporations Act – best interests duty.
→ Mortgage and Finance Association of Australia (MFAA) Code of Practice.
→ Finance Brokers Association of Australia Limited (FBAA) Code of Practice.
4.2 Create or update client records where necessary in a clear and concise format, and
file securely in a format and location readily accessible to other appropriate advisers
How to create and update client records efficiently?

Both creating and updating client records can be done manually or electronically. Consider the
following when entering information to a client file:
→ Ensure information entered is accurate and complete.
→ For easy retrieval, ensure electronic files are named properly and stored in appropriate folders.
For paper files, consider labelling or colour coding on the folders.
→ Minimise the use of abbreviations, make sure client files are easily understood by other
authorised officers.
→ For paper records, write in black or dark blue ink and have any mistakes crossed out and
initialled, with no liquid paper/white out used.
Client records storage and accessibility

Under the Privacy Act 1988, securing personal information such as that of clients is the organisation’s
obligation as to protect the personal information they ‘hold’ from misuse, interference, loss, and from
unauthorised access, modification or disclosure.
The term ‘hold’ extends beyond physical possession to include a record that an entity has the right or
power to deal with. For example, a mortgage broking company that outsources the storage of
personal information to a third party, but retains the right to deal with that information, including to
access and amend it, ‘holds’ that personal information.
To ensure secure storage consider the following:

→ For physical storage: lock filing cabinets and unattended storage areas, do not place client files
in public areas.
→ For electronic storage: regularly change passwords to prevent unauthorised access, set
different access levels, install antivirus software, only transfer data via secure channels.
APP suggests that entities take into account the rapid development of new and existing technologies
and platforms when designing information security policies and systems.
With regard to electronic records, the Australian Standard (AS ISO 15489) states that systems for
electronic records should be designed so that records will remain accessible, authentic, reliable and
useable through any kind of system change, for the entire period of retention.

Page 23 of 24
This includes migration to different software and hardware.
If changes in the documentation system occur, evidence of change should be kept along with details
of any variation in record design and format.
Robust internal personal information-handling practices, procedures and systems can assist in
embedding good personal information handling practices and to respond effectively in the event a
privacy breach occurs.
In summary, systems used in handling client records must enable the broker to:
→ Comply with all legal obligations.
→ Maintain client records and data integrity.
→ Protect all information.
→ Meet both current and future operational needs.
→ Review these systems regularly and factors that should be considered include system security,
currency of software and hardware, disaster recovery systems.
Access the full document on “Guide to Securing Personal Information” prepared by

the Office of the Australian Information Commissioner, here:
http://www.oaic.gov.au/privacy/privacy-resources/privacy-guides/guide-to-
securing-personal-information

Page 24 of 24

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FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING

FNSFMB402 Identify client needs for broking services

FNS40815_ FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

→ Determine clients’ existing financial situation

→ Determine client goals and priorities with respect to broking services

→ Prepare necessary documentation follow up

Purpose of this Learner Guide

Learner Guide support material

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

What is rapport building?

How to establish rapport with clients

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

For more information on loan pre-approval visit:

For more information on dispute resolution procedures visit:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Private Sale Auction

*) When a client buys a residential property in NSW, there is a 5 business-day cooling-off

For more information on cooling off periods:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

More information to present to clients can include:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Year 1 Year 2 Year 3 Year 4 Year 5+

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Procedures for complaint handling and resolution may include:

Example: Dispute resolution procedures of Mortgage Direct, a member of the

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Marital status – marriage certificate or divorce certificate.

Centrelink Payments – a letter from Centrelink or Department of Social Security or equivalent

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

3.1 Ask clients to clarify their product expectations

All clients have their own approach to investing:

3.3 Establish and confirm client priorities

Why the need to establish and confirm client priorities?

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

How to confirm client priorities including objectives and requirements?

Under this legislation a finance broker/adviser must:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

In short, this process can be summarised as follows:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Why the need for documentation?

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Cases where the Privacy Act may not apply to lenders:

2. Plan how client

4. Take steps to put into

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

How to create and update client records efficiently?

Client records storage and accessibility

To ensure secure storage consider the following:

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

Access the full document on “Guide to Securing Personal Information” prepared by

FNS40815_FNSFMB402 Learner Guide V1.0 REAA: Released November 2018

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