Most mortgage brokers genuinely believe they act in their clients’ best interests.
The challenge is that the Best Interests Duty (BID) iisn’t concerned with what a broker believes. It’s concerned with whether the broker can demonstrate that the recommendation they made was in the consumer’s best interests at the time it was made.
The difference goes to the heart of the Best Interests Duty.
A loan can be suitable. It can satisfy responsible lending obligations. It can even deliver a positive outcome for the consumer. Yet a broker may still struggle to demonstrate compliance with the Best Interests Duty if the recommendation cannot be supported by evidence, reasoning, and a documented assessment process.
This is one of the central themes of ASIC Regulatory Guide 273 (RG 273). The regulator is less interested in whether a broker can identify a good product and more interested in whether they can demonstrate why that product was the right product for that particular consumer.
Importantly, ASIC deliberately avoided creating a prescriptive compliance checklist. As RG 273 explains:
“[W]hat conduct satisfies the duty will depend on the individual circumstances in which credit assistance is provided to a consumer … the duty does not prescribe conduct that will be taken to satisfy the duty in specific circumstances.”
In practice, the Best Interests Duty is not a product-selection exercise. It is a decision-making framework.
Why Is Starting With the Product a BID Risk?
The starting point should never be the product.
Consumers often arrive with a preferred lender, preferred feature, or strongly held view about what they want. Brokers may also develop preferences based on experience, service levels, turnaround times, or familiarity with lender policies.
None of these preferences is inherently problematic.
The risk arises when recommendations are driven by those preferences rather than the consumer’s circumstances.
Compliance is not achieved by presenting a certain number of products, completing a form, or selecting the lowest interest rate. The starting point must always be the consumer.
Questions brokers should be able to answer include:
- What is the consumer trying to achieve?
- What constraints do they face?
- What outcomes matter most to them?
- What trade-offs are they willing to accept?
- Which features provide genuine value?
Only after these questions have been explored can a broker properly assess which products can meet the consumer’s objectives.
ASIC explicitly warns against standardised outcomes:
“The risk of non-compliance is substantially increased if a broker’s processes typically lead to a ‘one-size-fits-all’ outcome for consumers.” (RG 273.17)
The Best Interests Duty is fundamentally about individual judgment applied to individual circumstances.
Does the Best Interests Duty Require the Cheapest Loan?
No. The Best Interests Duty does not create a lowest-rate obligation.
Cost remains a critical consideration. Interest rates, fees, charges, and repayment obligations should all be assessed carefully. In many cases, cost will be one of the most significant factors in determining what is in a consumer’s best interests.
ASIC states:
“A failure to consider cost and investigate the lowest cost options available to the consumer may suggest non-compliance with the best interests duty.” (RG 273.54)
However, consumers derive value from different features depending on their circumstances.
For one borrower, an offset account may generate substantial long-term savings. For another, the same feature may create unnecessary cost without meaningful benefit. Similarly, lender policy, service standards, turnaround times, flexibility, and loan structure may be highly relevant in some situations and largely irrelevant in others.
The critical issue is not whether a feature exists. It is whether the broker can demonstrate that the feature provides value to that particular consumer.
Professional judgement requires brokers to weigh competing considerations and determine which factors are genuinely material to the client’s circumstances.
Cost should generally be investigated alongside product suitability, structure, flexibility, policy fit, and the client’s stated objectives. The weighting of these factors should be evident from the file.
How Is the Best Interests Duty Different From Responsible Lending?
Responsible lending and the Best Interests Duty operate alongside each other, but they ask different questions.
| Responsible Lending | Best Interests Duty |
| Focuses on whether a credit product is unsuitable. | Focuses on whether the recommendation is in the consumer’s best interests. |
| Primarily seeks to avoid foreseeable harm. | Requires active consideration of the best available outcome. |
| Assesses suitability. | Assesses comparative merit and consumer benefit. |
ASIC expressly acknowledges this distinction:
“There are situations where you might satisfy the responsible lending obligations but fall short of complying with the best interests duty.” (RG 273.110)
A loan may satisfy responsible lending requirements and still raise BID concerns if:
- Better alternatives were available.
- Alternative options were not properly investigated.
- The recommendation was influenced by factors unrelated to the consumer’s interests.
This distinction reflects the broader policy objective that emerged from the Hayne Royal Commission: not merely preventing unsuitable lending, but better aligning broker conduct with consumer interests.
Why Is the Conflict Priority Rule About Behaviour Rather Than Disclosure?
The Conflict Priority Rule is often treated as a disclosure requirement.
In reality, it is a behavioural obligation.
Under the Conflict Priority Rule (s158LB and 158LF)of the National Consumer Credit Protection Act 2009 (Cth), mortgage brokers must prioritise the consumer’s interests ahead of their own, a lender’s interests, or the interests of any related party when providing credit assistance.
ASIC’s position is clear: disclosure alone does not resolve a conflict. Where a conflict exists, brokers must prioritise the consumer’s interests.
This principle applies to:
- Commissions
- Referral arrangements
- Ownership structures
- Related-party products
- Commercial relationships with lenders
Consider a scenario where two lenders offer broadly comparable products, but one pays a higher commission.
The issue isn’t whether the commission is disclosed. The issue is whether the recommendation can be justified independently of the financial benefit received by the broker.
A useful question is: Would I make the same recommendation if no commission were payable?
If the answer is uncertain, the recommendation deserves closer scrutiny.
Commercial interests and consumer interests will often align. The challenge is ensuring that consumer interests remain the primary consideration whenever those interests diverge.
What Evidence Would ASIC Expect to See?
Include practical examples such as:
- documented client objectives
- product comparison rationale
- cost analysis
- alternative products considered
- file notes evidencing trade-off discussions
This improves reader recognition and creates a natural bridge into file review and compliance monitoring services.
Why Does Documentation Matter More Than Good Intentions?
Good intentions are not evidence.
Many brokers genuinely seek positive outcomes for their clients. However, compliance is ultimately assessed through evidence.
ASIC makes its expectations clear:
“We expect that evidence of compliance with the best interests obligations will come predominantly from the broker’s records.” (RG 273.21)
A broker may have:
- Considered multiple alternatives.
- Challenged a client’s assumptions.
- Weighed costs, benefits, and risks.
- Explored different lending structures.
However, if the file does not demonstrate that reasoning, proving compliance becomes significantly more difficult.
This is why robust record-keeping is central to BID compliance.
Strong records should demonstrate:
- What products were considered?
- Why were alternatives rejected?
- What discussions occurred with the client?
- Which factors influenced the recommendation?
- Why was the final recommendation considered appropriate?
In many respects, the quality of the documentation reflects the quality of the underlying decision-making process.
For brokers and Licensees implementing a structured file review program, documentation is often the most reliable evidence that professional judgment has been exercised appropriately.
Where documentation does not reflect the reasoning process, reviewers may struggle to determine whether appropriate professional judgement was exercised, regardless of the outcome achieved.
What Is the Real BID Question?
There is no safe harbour under the Best Interests Duty.
There is no checklist that guarantees compliance and no single process that will be appropriate in every scenario.
That is because BID is principles-based.
The obligation requires brokers to exercise professional judgement, place the consumer’s interests at the centre of their decision-making, and maintain evidence demonstrating how they reached their conclusions.
The most effective BID framework is not one focused exclusively on products, forms, or disclosure documents.
It is one focused on reasoning.
Ultimately, the Best Interests Duty comes down to a simple question: Why was this recommendation in this client’s best interests?
If that answer is clear, specific, evidence-based, and documented on file, a broker is likely to be well-positioned to demonstrate compliance.
If that answer can’t be articulated easily or clearly, the issue isn’t the documentation; it’s the recommendation itself.
For more guidance, see Assured Support’s insights on the best interests duty and file review program at:
- Doh! Better file notes
- Head to Head: Best interests, mortgages and financial product advice
- Beyond wagyu and shiraz: a new world for mortgage brokers
No. ASIC expects brokers to consider cost carefully, but BID does not impose a lowest-rate obligation. Brokers must assess whether features, flexibility, policy settings, and overall value are genuinely relevant to the client’s circumstances.
Yes. A loan may be suitable and not unsuitable under responsible lending requirements, yet still raise BID concerns if better alternatives were available or the recommendation cannot be adequately justified.
Files should generally show client objectives, alternatives considered, product comparisons, key discussions, reasons for rejecting options, and why the final recommendation was considered appropriate.
No. Disclosure alone does not remove a conflict. Brokers must prioritise the consumer’s interests whenever a conflict exists and be able to demonstrate that the recommendation was not influenced by personal benefit.
Ask: “Why was this recommendation in this client’s best interests?” If the answer is clear, evidence-based, client-specific, and documented, the recommendation is more likely to be defensible.
