What is the best interests duty?

The trigger depends on the regime. For financial advisers and planners the duty applies when they give personal advice under the Corporations Act, meaning advice that considers one or more elements of the customer's objectives, financial situation or needs; general information and market commentary do not trigger it. For mortgage brokers it comes from Part 3-5A of the National Consumer Credit Protection Act and applies whenever they provide credit assistance to a consumer, with no personal advice threshold.

Licensees and aggregators that authorise and supervise brokers carry the duty too. A broker outside the Act's definition of a mortgage broker, such as many equipment and car finance brokers, is not subject to it, though responsible lending applies to consumer credit they arrange.

It is separate from responsible lending obligations, which test whether a loan is unsuitable; the best interests duty asks whether the recommendation itself served the customer. Product issuers have their own design and disclosure duties, but the best interests duty regulates adviser and broker conduct, not the product.

The duty is met by taking the steps a reasonable person in your role would take. Start with a thorough, documented fact-find and verify the material facts: income, liabilities, assets, timeframes and capacity to repay. Then consider a suitable range of options rather than one; ASIC's guidance expects several alternatives to be weighed, depending on the market and the customer.

Document the analysis in a comparison that shows costs, features, risks and why the recommended option wins, and give the customer a short plain-English summary of the reason. Where a conflict cannot be removed, manage it with something concrete such as independent benchmarking or a review gate, and record how. Keep the fact-find, comparison, recommendation and disclosures on file, dated, and review them when the customer's circumstances change.

Most breaches trace back to money or laziness. Commissions and volume bonuses that steer recommendations towards one lender, narrow panels used without documenting why the excluded options were unsuitable, fact-finds with unverified income or liabilities, and recommendations made without evidence that anything else was considered all fail the test. So does relying on disclosure alone: telling a customer about a conflict does nothing to stop it influencing the advice.

The fix is structural. Avoid pay arrangements that reward recommending particular lenders where you can, put independent reviews or approval gates around decisions where you cannot, and change processes rather than adding another line to the disclosure. Licensees and aggregators are expected to have systems that show they manage lender incentives and panel design.

ASIC enforces the duty with inquiries and information notices, infringement notices for lower-level breaches, and civil penalty proceedings, banning orders or disqualification for serious ones. Remedies include fines, compensation orders, injunctions and enforceable undertakings. Its published actions keep returning to two failures: no documented comparison, and conflicts that were disclosed but never managed.

As a customer, expect a written explanation of why a product was recommended, disclosure of fees, commissions and conflicts at or before the advice, and evidence that alternatives were considered. Fair questions to ask are how the options were compared, what else was considered and why it was unsuitable, and how the adviser is paid. If the answers are poor, complain to the adviser and licensee, then to AFCA, and report serious conduct to ASIC.