Ariki’s father Wiremu owned a property and wanted to free up some money to do some renovations. He also wanted to have some money available to invest. Together with his family he decided that some of his children would purchase the property to free up the money he needed.
Ariki approached a mortgage adviser. He asked the adviser to help get a loan of $300,000 to purchase the property from his father. Ariki told the adviser he was self-employed and had a bad credit history. Based on this the adviser recommended that other members of the family should apply for a loan.
The adviser submitted a joint loan application to a bank. The borrowers were going to be Ariki’s sister (Marama) and his sister-in-law. This application was declined because of his sister-in-law’s credit history. The adviser then submitted a second application to a different bank that was only in Marama’s name. This second application was approved, with the bank taking a mortgage over the property.
The adviser then referred Ariki and his family to a lawyer who helped them set up a family trust. The family trust was set up to own the property and it was intended to protect the interests of all family members.
After the loan was taken out Ariki complained that the adviser had given bad advice and breached professional standards. This was because Ariki was unhappy with the home renovations Marama had arranged. He also said Marama had stopped him from accessing the property.
Ariki complained that the adviser had worked secretly with Marama to get the loan in her sole name. He said that once the loan was approved, the adviser pressured him into accepting the arrangement, and this gave Marama all the power to do what she wanted with the property. He also said this put the other family members at a disadvantage, and even meant Wiremu was worse off because he was left paying rent to Marama.
Ariki also claimed the adviser had prevented him from becoming a borrower. He suggested the adviser should have applied to second-tier lenders so more members of the family could have been joint borrowers.
The adviser didn’t agree with Ariki’s complaint. He said he had been instructed to obtain a loan of $300,000 and had fulfilled his duties as a broker. He also said he wasn’t responsible for the later dispute between Ariki and Marama.
After reviewing all the correspondence between Ariki and the adviser, we decided the adviser had done what he was engaged to do, which was to obtain a loan of $300,000. We didn’t accept that the adviser had pressured Ariki, particularly because of an email where Ariki confirmed he agreed with Marama being the sole borrower.
We were satisfied that the adviser’s advice about Ariki’s prospects as a borrower was reasonable advice. We didn’t think it would have been appropriate for the adviser to apply to second-tier lenders once the bank approved Marama’s application. This was because second-tier lenders would have charged higher interest rates, leaving the family in a worse financial position. Instead, we thought the adviser had acted reasonably by referring the family to a lawyer to get advice about protecting their collective interests.
We found that most of the issues Ariki had raised were familial disputes between him and Marama. This included concerns about access to the property. We also noted that the application the adviser submitted showed that Marama had enough money to meet the loan repayments – so any disputes about Wiremu’s contributions were a family matter.
Because we though the adviser had acted reasonably, we issued a final decision that Ariki should discontinue his complaint.
Insights for consumers
It is important to understand the extent of an adviser’s responsibilities when arranging finance. Advisers need to act with reasonable care and skill and can’t mislead or deceive consumers. However, in a case like this where the adviser acted reasonably, they can’t be held responsible for the impact of a wider family dispute.