16 | fall 2015 mbabc.ca MORTGAGEBROKER
Is a
Mortgage
Broker
a Fiduciary?
fiduciaryobligation
COMPENSATION DISCLOSURE OBLIGATIONS on mortgage
brokers do not end with the Mortgage Brokers Act. ere are common law
obligations of disclosure which fall under the law relating to fiduciaries.
A fiduciary has a legal and ethical relationship of trust with his or
her client. Fiduciaries have the highest standard of care in law. ere
must be no conflict of duty between the fiduciary and the client; further,
the law requires that a fiduciary not profit from his of her position as a
fiduciary without knowledge and consent from the client.
If mortgage brokers are fiduciaries, then they must disclose all
compensation and benefits received from parties other than their client
to their client. is would include disclosing to mortgage borrowers the
amount of lender commissions received. e question then is, "Are all
mortgage brokers fiduciaries of their clients?"
In 2009, the Supreme Court of Canada in Galambos v. Perez clarified
that for a person to be a fiduciary, he or she must have undertaken to be
one either expressly or implicitly. A person does not become a fiduciary
of another person simply because they are in a position of power over
the other person. e importance of this decision for mortgage brokers
is straightforward: mortgage brokers may explicitly or implicitly by
their conduct become fiduciaries but they are not inherently fiduciaries.
Whether or not they are a fiduciary of their client depends on the nature
of their relationship with their client, not on their job title.
A fiduciary is someone who:
■ exercises discretion on behalf of clients rather than following
instructions; and
■ makes decisions for clients rather than giving the client
information and equipping them to make decisions for
themselves.
An example of the court ruling that a mortgage broker did not act as
a fiduciary is found in the British Columbia Court of Appeal (2004) case
in Lindner v. Williams. A couple lent money on a mortgage found by a
mortgage broker. ey lost money on the mortgage, as the house at the
time of foreclosure proceedings was devalued because it was a grow-op.
e Court said that whether a fiduciary duty exists depends upon the
nature of the relationship, not the occupation of the person said to be a
fiduciary. e lenders were aware that the mortgage broker's job was to
find mortgage financing for borrowers and that he was not their financial
advisor. Based on his functions, the mortgage broker was not a fiduciary.
Mortgage brokers are therefore not, by definition, fiduciaries. It is the nature
of their relationship with a client which determines whether or not they
BY SAMANTHA GALE
