Fiduciary Duty: Why Mortgage Brokers Work for You

by Steve Clark on April 5, 2012

Fiduciary duty is bigger than a phrase it is a set of relentless legal rules that all barristers, stock or investment counsellors, realtors and mortgage brokers and agents, among many occupations, are bound by. They can and do face court action with severe penalties for violation of these rules and guidelines. The Supreme Court of Canada defines the key elements of fiduciary duty as, trust, confidence and a reliance on abilities and knowledge. If those elements exist in a committed relationship, then fiduciary duty exists and is legally enforceable. Put in simple words fiduciary responsibility is; the putting of a client’s interest before yours and providing the highest standard of care to that client in the advertising of those interests.

In the case of a commercial or retail outlet, for example a store, car dealer, furniture store, or a bank, workers are thought to be “at arm’s length” from the transaction. This includes the “mobile mortgage experts” being heavily promoted by the banks.

When you go to one such outlet it is implied the store clerk, sales rep, or employee is representing his or her employer. In this case, the worker is tasked with first making sure the employer’s best interests, (profits), are being met. It is accepted that in any exchange the salesman is interested in inflating their own compensation with commissions from a sale. The same thing is true in a bank. Quotas, bonuses, raises and promotions are all based upon the sales of products, heavily publicized promoted and dictated by head office for the sake of the bank’s profit.

On the Wikepedia site, out of the 22 examples listed as occupations, which typically by law, attract fiduciary relations, banks are not on the list, except mutual savings banks. (a mutual savings bank is one where the entirety of profits belong to the depositors and is not owned by investors)

Legally, according to the Supreme Court, a commercial or retail enterprise isn’t bound by fiduciary duty. In a decision in the case of Hodgkins v Simms, 1994 (3SCR 377), it stated “in a professional advisor context however an individual receiving guidance should not have to protect him/herself from the abuse of authority by their independent counsellor, when the basis of the advisory contract is that the counsel will use their special skill for the advisee. In sharp contrast to arm’s length commercial relationships which are indicated by self interest, the essential nature of a professional advisory relationship is exactly trust, confidence and independence.”

Further inquiry into agent and fiduciary responsibility exposes such a relationship imposes certain duties and responsibilities. Some are, but aren’t limited to;

Loyalty to clients.

The right use of abilities and data to promote the clients”s best interest.

Putting the client’s interest put before the agent or agency.

Not ever compromising a client’s best interests.

Provision of full disclosure and consent.

Complete confidentiality and truthfulness.

For the many thousands of unsuspecting individuals who go into a bank expecting that a fiduciary relationship will exist and is enforceable by law, this must come as quite a surprise. They incorrectly believe their trust, confidence, and reliance on abilities and knowledge of the bank worker will be in their best interest. They envisage their interests are being promoted, but strangely the banks are exempt legally from fiduciary duty. Despite all the proof and appearances which exist in a bank to give the impression of these responsibilities existing, there’s not legal priority or a need on behalf of the bank to supply them. Try getting full disclosure next time you apply for a mortgage at a bank, it will not occur.

For the thousands of mortgage brokers, agents and independent executives who are bound by both agency law and fiduciary duty this only serves to reinforce our commitment to serve our customers faithfully. It’s a vindication of our unique and determined place in the mortgage industry. It also serves to promote the mortgage broker network as the best logical choice when seeking a mortgage. When we guarantee that, we are working for our customers and not the bank, you know that as our customer, there is very strong and definite Supreme Court precedence to be certain we do.

Steve Clark is a mortgage agent with Northwood Mortgages. He keeps his clients up to date with the latest mortgage reports by posting on his site

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