ASIC expects AFS licensees to identify, document, and manage conflicts of interest through structured processes that recognise actual and potential conflicts, record how they arise, and implement controls to ensure advice remains in the client’s best interests. This includes clear disclosure, mitigation strategies, and ongoing monitoring.
Expanded Answer
ASIC’s position is that conflicts of interest must be actively managed, not simply disclosed. AFS licensees are expected to identify conflicts arising from remuneration structures, product recommendations, referral arrangements, or ownership links. Documentation must clearly describe the nature of the conflict, how it could affect advice, and the controls in place to manage it.
In practice, this requires maintaining a conflicts register, documenting conflicts at both the business and client level, and ensuring advisers explicitly consider conflicts when providing advice. File records should show how the conflict was addressed in the context of the client’s circumstances, including why the recommendation remains appropriate despite the conflict. Disclosure alone is insufficient if there is no evidence of mitigation.
Regulatory scrutiny increases where conflicts are generic, poorly described, or not linked to actual advice decisions. ASIC expects conflict management to be embedded in advice processes and supported by governance oversight. Practical expectations are outlined in Navigating the conflicts management obligation: a comprehensive guide for financial planners and prospective AFSLs and Why compliance isn’t enough: reconciling law with ethical principles and ASIC’s expectations.
Why it matters
Poorly managed conflicts increase the risk of inappropriate advice, client harm, and regulatory action. ASIC enforcement often focuses on conflicts that are disclosed but not effectively controlled.
Practical guidance
- Identify and record all actual and potential conflicts, including remuneration, ownership, and referral arrangements
- Document how each conflict is mitigated in practice, including controls applied at the advice and licensee level
- Evidence in client files how conflicts were considered and why the advice remains in the client’s best interests
Further reading
ASIC’s updated RG181
Client consent: a compliance cornerstone and trust-building tool