Best interest duty – what does the regulator expect?



26th February 2018


Best interests duty & ASIC report 562


ASIC REPORT 562 – Financial advice: Vertically integrated institutions and conflicts of interest examined advice prepared by institutionally owned advice groups. Not surprisingly there were conflicts detected and a significant proportion of advice found wanting.

There are lessons in the report for all advisers but in the eyes of Brett Walker of SMART Compliance the key takeaway is the focus on the best interests safe harbour as the minimum expectation of the regulator.

Brett also noted that when it comes to framing advice and aligning it to client needs the ASIC feedback is particularly relevant. ASIC noted significant concerns around switching. In particular where switching resulted in:

  • Inferior life insurance arrangements
  • Significant increases in ongoing product fees 
  • No additional benefits being identified that were consistent with the customer’s relevant circumstances. 

Failing to adequately assess an existing product’s capacity to meet client goals was another criticism levelled at about 75% of advice reviewed.


Key messages for all advisers


1. Use Best Interests Safe Harbour tests as a checklist for your advice.

2. Perform due diligence on existing financial products (including platforms and structures like SMSFs) when considering a switch recommendation.

3. Costs and features are important however you need to link them back to all relevant client circumstances especially if costs of the fund to which you are switching will be higher.  


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