ASIC expects AFS licensees not to rely solely on disclosure to address material conflicts, particularly where structural incentives or relationships may influence advice outcomes. Examples include related-party product recommendations, remuneration structures tied to product outcomes, and vertically integrated models without independent governance, where stronger controls are required to reduce client detriment risk.
Expanded Answer
ASIC’s guidance in RG 181 makes clear that disclosure is a secondary control and is generally insufficient where conflicts are embedded in business structures or remuneration models. AFS licensees must assess whether the conflict creates a real risk of biased advice. Where that risk is material, disclosure alone will not meet the obligation to act efficiently, honestly and fairly or support compliant advice outcomes.
In practice, common examples include recommending in-house or related-party products where external alternatives exist, particularly if product selection is influenced by ownership or commercial relationships. Remuneration structures that reward advisers for placing specific products, generating higher margins, or meeting volume targets also create conflicts that cannot be neutralised by disclosure. Similarly, vertically integrated models without independent product governance or oversight create systemic conflicts requiring structural controls.
Regulatory risk increases where these conflicts are managed primarily through generic disclosure rather than changes to incentives, product governance, or supervision. ASIC expects measures such as restructuring remuneration, limiting product scope, introducing independent approval processes, or increasing the intensity of monitoring and file review to demonstrate that client interests are prioritised.
Why it matters
Over-reliance on disclosure for material conflicts is a common trigger for ASIC enforcement. Where structural conflicts influence advice outcomes, this is likely to be treated as an advice failure, increasing exposure to breaches, remediation, and AFCA complaints.
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Practical guidance
- Remove or redesign remuneration structures that incentivise specific product outcomes
- Implement independent product governance and approval processes for related-party products
- Increase supervision and file review intensity where structural conflicts cannot be eliminated
Further reading