Your duty to act in the client’s best interests
The best interests duty is a statutory duty introduced into the law as part of the 2013 FOFA reforms.
The best interests duty is found in section 961B of the Corporations Act. This says, with deceptive simplicity, that “the provider must act in the best interests of the client in relation to the advice”. “Best interests” is not defined, and we are left to ponder what the phrase will eventually mean when interpreted by the courts.
An adviser in breach of section 961B faces at least three possible adverse outcomes. These are:
- a civil penalty under the Corporations Act civil penalty provisions
- an administrative penalty such as a banning order or
- civil sanctions such as a damages order by a court or an alternative disputes forum such as the Financial Ombudsman Service and the Credit & Investments Ombudsman.
The section 961B best interests duty is technically separate to and in addition to the section 961G appropriate advice rule and the section 961J priority rule. But in practice these three statutory advice obligations merge together, such that the facts comprising a breach of one will probably, but not necessarily, breach all three. They are often spoken of as if they are a composite rule for example “…your advice is not in your client’s best interests and is not appropriate to your client…”.
The best interests duty is discussed in more detail on the next page.