Insights for advisers and participants
Priscilla and Caleb’s complaint raises several important reminders, including:
- Advisers should be mindful of not overpromising on the likelihood of obtaining lending. This can lead to disappointment or the consumer taking actions that might result in a loss, like Priscilla and Caleb listing their house for sale in anticipation of moving into a new business and accommodation.
- Advisers must comply with their record-keeping obligations and must provide their full file to FSCL to assist us with our investigation. We would usually expect to see file notes of calls or meetings, particularly where advice has been given. If the adviser does not have records, we are likely to place more weight on the consumer’s summary of events.
- Participants and advisers should ensure that they are properly managing and responding to FSCL’s requests for information when we make them during our investigation process. Timely responses to our requests assist us in ensuring that the investigation process runs smoothly and can often allow the parties to reach a resolution sooner.
What happened?
In May 2024, Priscilla and her partner Caleb contacted a mortgage adviser for help to obtain finance to purchase a motel. Their plan was to sell their home, move into the motel and run the business together. They gave the adviser information about their business plan and finances between May and June.
In July 2024, the adviser told Priscilla and Caleb that the bank would only lend them 65% of the registered valuation of the motel and only if the motel met 67% of the earthquake code. Concerned, Priscilla and Caleb contacted another adviser, who was quickly able to explain the bank’s lending criteria to them and that their circumstances and the motel they were looking at would not meet the bank’s criteria.
Priscilla and Caleb complained that the first adviser had led them to believe for almost three months that they were eligible to obtain a loan to buy the motel, had reassured them that they would get finance, and had taken too long to explain the bank’s lending criteria. Relying on the adviser’s advice, they had listed their home for sale, put in an offer on the motel, and had incurred legal and marketing costs totalling $5,556.
Priscilla and Caleb complained to FSCL.
What was FSCL’s view?
After receiving information from the adviser, we could see that:
- The adviser had applied for finance with the bank, and the bank had confirmed the lending criteria with the adviser in July 2024, but it was unclear why it had taken almost three months for the adviser to get that information from the bank.
- It seemed unlikely that Priscilla and Caleb’s personal circumstances and the motel that they were looking at would have met the bank’s lending criteria.
- Another adviser had been able to provide Priscilla and Caleb with advice on the bank’s lending criteria and the likelihood of getting a loan to buy the motel, within a few days of speaking with them.
- The information that the adviser gave us to assist with our investigation was incomplete and was missing key pieces of information. Specifically, it appeared that the adviser had not given us all email correspondence between himself, Priscilla and Caleb, and he had not kept any file notes of the calls, meetings and advice he had given to Priscilla and Caleb.
We considered that the adviser and the participant (whose licence the adviser was working under) had not adequately assisted us during our investigation of the complaint. This is because there were lengthy delays in getting information from the adviser and participant, and when the information was provided, it was incomplete.
How did FSCL suggest that the complaint should be resolved?
Because Priscilla and Caleb said that they wanted to be able to put the matter behind them and just wanted to be reimbursed for the $5,556 that they had spent on legal and marketing costs, relying on the adviser’s advice, we suggested that the adviser pay their costs to resolve their complaint.
The adviser agreed with our suggestion, and we closed our file.
