Verifying living expenses

Make reasonable enquires about the client’s financial position, requirements, and objectives

Verify the client’s financial position by taking reasonable steps to confirm these facts. This is a dynamic process that requires you to obtain evidence that can withstand reasonable scrutiny. This process is dynamic because it can vary according to the circumstances of your clients and is scalable based on the complexity of the client structure.

Maintain good records/notes that can demonstrate that you have acted in the client’s best interest.

Send your client a fact find or monthly living expenses budget template to breakdown their current and ongoing monthly living expenses.

Review and analyse the expenses that have been declared by the clients to ensure they have covered all the different living expense categories and that the supporting documentation provided is consistent with the client’s disclosure

Verify the information declared against the client’s transaction account statements and credit card statements. It is recommended to view a min of three (3) months statements to ensure all different types of expense frequencies have been covered. Extra verification would be required for any biannual or annual declared expenses.

Identify, challenge, and mitigate any discrepancies, like undisclosed debts,

underestimated expenses, and unusual spending patterns

Maintain good notes regarding the additional challenges and verifications that you made and the client’s responses. This is to demonstrate that you did make enquires, you challenged where required and you made verifications.

Household Expenditure Measure (HEM) that the Lenders use, are benchmarks to measure your client’s expenses against the average population and there to help you form an opinion to seek further clarification and make further verifications about your client’s monthly expenses. HEM should not be used to replace your clients actual living expenses.

A small number of your client's might not know how much they spend and may disclose living costs under the benchmark. Your detailed notes must substantiate your verification process. Errors and omissions will not meet Best Interest Duty

Lending submission notes will help improve your submission quality and help reduce assessment delays if you have explained the living expenses within your submission notes to the lender and provided supporting documentation

Taking the time and interest in your client’s scenario by helping them understand the break down and the different expense categories will help you achieve a good client outcome

Do a reality test and ask yourself, do the declared expenses look reasonable for that family structure? If you have any doubts you need to seek further verifications

Additional notes are recommended to explain any expenses that will increase, decrease, or cease once this new loan settles

Always save a copy of your notes to Infynity, this will help confirm that you have acted in the client's best interest. Good, detailed notes provide valuable information for AFCA, Lender, Aggregator, Regulator, or client, should they want to review the file or dispute something down the track

Look for red flags:

By comparing the declared assets against the declared expenses. For example, if the clients have declared two (2) motor vehicles but no expenses for the vehicles like petrol, insurance, or maintenance, then you need to ask more questions and seek further verifications

If your client declares their living expenses to be $2K per month for example and they are earning $6K net per month, you expect to see evidence of savings every month of around $4k

Go to the Client’s Account

Financial Tab

Monthly Expenses – ensure all the relevant categories have been selected and

completed within Infynity

The Statement of Credit Assessment (SOCA) will display the expenses for the clients to sign