A Guide to Conflicts of Interest for Financial Advisers

Key Takeaways

• What is a conflict of interest? It’s any situation where the interests of the adviser or licensee diverge from the client’s interests, potentially influencing the advice given.
• What is conflicted remuneration? It is any benefit, monetary or non-monetary, given to a financial adviser or their licensee that could reasonably be expected to influence the advice they provide. This is generally banned in Australia.
• Disclosure is not enough: You cannot simply disclose a banned benefit to make it acceptable. If a payment is classified as conflicted remuneration, it must be avoided entirely.
• ASIC is watching: The regulator continues to actively pursue licensees for breaches related to conflicted remuneration, reinforcing that this is a major enforcement priority.

What is a Conflict of Interest in Financial Advice?

A conflict of interest exists when the interests of a financial adviser or their licensee are inconsistent with their client’s interests. The core obligation is to manage these conflicts by always prioritising the client, ensuring that financial advice is provided efficiently, honestly, and fairly. Trust is the foundation of financial advice, and these rules are in place to protect it.

Australian law requires personal advice to retail clients to meet several key obligations: the best interests duty, the appropriate advice duty, and the conflicts priority rule. On top of this, AFS licensees must maintain adequate arrangements to manage conflicts of interest under section 912A of the Corporations Act.

What is Conflicted Remuneration?

Conflicted remuneration is any benefit that could reasonably be expected to influence the financial product advice or the choice of product recommended to a client. The Corporations Act generally prohibits giving or accepting these benefits.

It’s important to think beyond a simple “referral fee.” Common examples that are likely to be considered conflicted remuneration include:

• Per-client “marketing support” payments.
• “Sponsorship” or “referral” fees tied to product recommendations.
• Volume-based payments that scale with funds under management or product sales.

These rules apply to benefits paid to the adviser directly and to benefits paid to their AFS licensee, as they can still influence the advice provided on the ground. ASIC’s guidance in Regulatory Guide 246 (RG 246) provides detailed information on this topic.

Is Disclosing a Conflict of Interest Enough?

No, disclosure alone is not a silver bullet. While disclosing conflicts is a necessary part of the advice process, it does not legitimise a prohibited benefit. If a payment is considered banned conflicted remuneration, you cannot accept it, regardless of whether you disclose it to the client.

Furthermore, all advice must still satisfy the best interests duty and related obligations. ASIC’s guidance in Regulatory Guide 175 (RG 175) makes it clear that a good test for appropriateness is whether the client is likely to be in a better position after acting on the advice. A disclosed bad deal is still a bad deal.

What are the Common Red Flags for Conflicted Remuneration?

You should be cautious if you encounter arrangements with the following features:

• Per-client payments, shelf-space fees, or volume-based benefits linked to product recommendations or fund flows. These are almost always banned unless a very specific exception applies.
• “Marketing assistance” or “distribution support” that increases with the number of recommendations or the amount of assets placed in a product. This can be conflicted remuneration even if it’s paid to the AFSL.
• Non-monetary benefits that are more than minor or infrequent, or benefits that are conditional on placing clients into certain products.

How Do Conflicts of Interest Affect Your Legal Duties?

Allowing financial interests to compromise your advice puts you at risk of breaching your core legal duties to retail clients, including:

• The best interests duty (s961B).
• The duty to provide appropriate advice (s961G).
• The conflicts priority rule (s961J).

Separately, the AFS licensee has an overarching obligation to have adequate arrangements in place to manage conflicts and to ensure its services are provided efficiently, honestly, and fairly (s912A).

How Do Design and Distribution Obligations (DDO) Relate to Conflicts?

The Design and Distribution Obligations (DDO) require product issuers to define a Target Market Determination (TMD) for their products. Distributors, including financial advisers, must then take reasonable steps to ensure products are only distributed to clients within that target market.

While DDO operates alongside your duties as an adviser, it doesn’t replace them. Ensuring your recommendation aligns with the product’s TMD is a key part of the overall compliance assessment and helps demonstrate that the advice is appropriate for the client. You can find more details in ASIC’s Regulatory Guide 274 (RG 274).

What is a Practical Checklist for Managing Conflicts?

To help ensure your advice is safe from conflicts, consider the following checklist:

1. The ‘Why’ Test: Does the client file clearly explain why this specific product and strategy are the best fit for the client’s circumstances? This should reflect a reasonable investigation and assessment.
2. The Payment Trail: Document any benefit received. Who is the payer, what is the basis for the payment, and how is it calculated? Assess it against the conflicted remuneration rules in RG 246.
3. The Alternatives Test: Does your file show that you investigated suitable alternatives, including non-conflicted options, and explain why they were less suitable?
4. The ‘Best Interest’ Proof: Can you demonstrate how the advice leaves the client in a better position regarding costs, features, and risks?
5. Benefit Status Check: If any payment is prohibited, it must be stopped or avoided. Managing it through disclosure is not an option.
6. Licensee-Level Benefits: Remember that benefits paid to the AFSL can still be captured if they could influence advice.
7. Code of Ethics: Standard 3 of the Code of Ethics prohibits advisers from acting if there is a conflict of interest or duty.
8. DDO Alignment: Confirm the client fits the product’s TMD and distribution conditions.
9. Conflicts Framework: Ensure your AFSL’s conflicts management arrangements are robust and reflected in your processes, registers, and records.

What are the Consequences of Getting it Wrong?

ASIC continues to make conflicted arrangements a key enforcement focus. Recent court actions have seen licensees face significant penalties for conflicted remuneration breaches. Firms should expect ASIC to use its full range of powers—including requiring remediation, accepting enforceable undertakings, and pursuing civil action—where conflicted payments are found to have compromised an adviser’s duties.

The Bottom Line

If a benefit is classified as prohibited conflicted remuneration, the only compliant path is to cease or refuse it. If a conflict of interest exists that cannot be effectively managed in a way that prioritises the client, it must be avoided. Getting this right is not just about compliance; it’s about maintaining trust and building a sustainable, professional business.