Best Interests Duty, Five Years On

Key takeaways

• BID applies to mortgage brokers, not to bank lending staff.
• It requires prioritising the consumer's interests where a conflict exists.
• The clearest change is in how recommendations are documented and justified.
• It sits alongside responsible lending, not instead of it.

What has actually changed?

Documentation, mostly, and that is not a criticism - the documentation is the evidence that the reasoning happened.

A broker now needs to be able to show why a particular product was recommended: what the consumer's requirements and objectives were, what options were considered, how the recommendation compares on rate, fees, features and structure, and how any conflict was handled.

The remuneration reforms that accompanied it changed incentives directly - upfront commission calculated net of offset balances, and closer scrutiny of arrangements that could bias a recommendation.

ASIC set out its approach in Regulatory Guide 273, and the obligation is deliberately outcomes-based rather than a checklist, which means it turns on the substance of what was recommended.

What did it not change?

This asymmetry is the most commented-on feature of the reform. A consumer walking into a branch receives a recommendation from someone who is not subject to best interests duty and who can only offer one lender's products; the same consumer using a broker gets both the duty and a panel.

It also does not make a broker an adviser on your whole financial position. The duty attaches to the credit assistance provided, not to whether you should be buying property at all.

How should a borrower use it?

By asking the questions the duty requires the broker to have answered.

1. "Why this lender?" A good answer references your circumstances, not the lender's brand.
2. "What else did you consider, and why not those?"
3. "How are you paid on this, compared with the alternatives?" Commission differences must not drive the recommendation, and a broker should be comfortable discussing it.
4. "How many lenders are on your panel, and is this one of them?"
5. "Is this a white-label product, and who is the actual credit provider?"

None of these are hostile questions. A broker complying with the duty has already done this analysis and will answer easily. Reluctance is the signal worth noticing.

If you believe a recommendation was not in your best interests, raise it with the broker's licensee first and then with AFCA, which handles complaints about credit assistance.

Frequently asked questions

When did best interests duty start for brokers?

It commenced on 1 January 2021 under the NCCP Act, following recommendations from the Financial Services Royal Commission. ASIC Regulatory Guide 273 explains how ASIC administers it.

Does best interests duty apply to bank staff?

No. It applies to mortgage brokers providing credit assistance. Bank lending staff remain subject to responsible lending obligations but not to best interests duty, which is a widely noted asymmetry.

Does BID mean my broker must find the cheapest loan?

Not solely. Rate is one factor alongside fees, features, structure and suitability for your circumstances. The duty is about acting in your best interests overall, which is not always the lowest advertised rate.

What can I do if I think my broker breached it?

Raise it with the broker's licensee through their internal complaints process, and escalate to AFCA if it is not resolved. AFCA handles complaints about credit assistance at no cost to consumers.

Related reading

• AFCA Complaints: How the Process Works
• The Countercyclical Capital Buffer
• Debt-to-Income Above 6: The Wrong Side

Sources

• Mortgage brokers: Best interests duty (RG 273) — ASIC
• Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry - Final Report — Commonwealth of Australia