Best interests duty under section 961B Corporations Act and the safe harbour

Scope of the best interests duty

Section 961B(1) of the Corporations Act requires a provider of personal advice to a retail client to act in the best interests of the client. This duty is located within Division 2 of Part 7.7A and was introduced as part of the Future of Financial Advice (FOFA) reforms in 2012. The duty applies to natural persons providing the advice, and the Australian Financial Services Licence (AFSL) licensee is responsible for ensuring compliance.

The best interests duty operates alongside the Financial advisers code of ethics 2019 Standards. Failure to adhere to this duty can result in civil penalty proceedings. These proceedings may be taken against the AFSL licensee under section 961K or against the provider under section 961Q.

Individuals who breach the best interests duty may face penalties of up to 5,000 penalty units.

The 7-step safe harbour in s 961B(2)

The Corporations Act outlines a 7-step safe harbour in section 961B(2) that helps demonstrate a financial services provider has met their best interests duty. AFSL personal vs general financial advice The first steps involve understanding the client. This includes identifying the objectives, financial situation and needs disclosed by the client, and identifying the subject matter of the advice sought, alongside any other relevant objectives, financial situation and needs. Where information appears incomplete or inaccurate, reasonable inquiries must be made to obtain complete and accurate information.

Further steps focus on expertise and product assessment. A provider must assess whether they possess the necessary expertise to provide the advice and decline to provide it if they do not. If it would be reasonable to consider products, a reasonable investigation and assessment of information is required, with all judgments based on the client’s relevant circumstances.

The final step, outlined in paragraph (g), requires providers to take any other step that would reasonably be regarded as being in the client’s best interests. This acknowledges that the prescribed steps are not exhaustive and encourages a holistic approach to fulfilling the best interests duty.

Related obligations: s 961G appropriate advice, s 961J priority

Section 961G imposes a requirement that advice provided under section 961B must be appropriate, considering the client’s relevant circumstances. This obligation is underpinned by the need for advice to be tailored to the individual client’s needs and situation. Failure to meet this standard, as demonstrated in *ASIC v NSG Services Pty Ltd* [2017] FCA 345, can result in civil penalty proceedings. Adherence to this requirement is also relevant to [ASIC RG 271 internal dispute resolution] processes.

Section 961H mandates that providers must warn clients if advice is based on incomplete or inaccurate information. This highlights the importance of transparency and ensuring clients understand the limitations of the advice they receive. The cases of *ASIC v RI Advice* and *ASIC v Dixon Advisory* illustrate that licensees have a responsibility to monitor advice to ensure compliance with this and other obligations.

Where a conflict of interest arises, section 961J requires the provider to prioritise the client’s interests above those of the provider, the licensee, and any related parties. This prioritisation is a fundamental aspect of the best interests duty and reinforces the fiduciary nature of the obligation.

Beyond safe harbour - principles-based compliance

Following the implementation of the Government’s Delivering Better Financial Outcomes reforms (Tranche 1, in force from 2025), the safe harbour for non-relevant providers is repealed. However, the best interests duty under section 961B of the Corporations Act remains. This means financial advisers continue to be obligated to act in the best interests of their clients. Financial advisers code of ethics 2019

Even with the previous safe harbour, compliance required more than simply following a checklist. Providers were expected to satisfy section 961B(1) in substance, not just in process. This expectation continues post-repeal, requiring advisers to genuinely consider and prioritise client interests. Records of Advice (ROA) and Statement of Advice (SOA) should clearly document each step taken to demonstrate compliance with the best interests duty.

When recommending products, particularly those that are related-party products, additional scrutiny is essential under section 961J. Furthermore, Standards 2, 5 and 7 of the Financial advisers code of ethics 2019 are closely aligned with the steps previously outlined in the safe harbour and should be considered in demonstrating best interests compliance.