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Best Interests Duty Explained: Your Rights When Working with a Mortgage Broker

Q: When exactly did Best Interests Duty come into force?

BID took effect on 1 January 2021, as part of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. It was one of the most significant changes to mortgage broking regulation since the introduction of the National Consumer Credit Protection Act 2009, and represents a direct legislative response to Royal Commission findings about conflicts of interest in broking.

Since 1 January 2021, every mortgage broker in Australia has been legally required to act in your best interests. This might sound obvious — of course your broker should look out for you — but the Best Interests Duty (BID) formalised this as a strict legal obligation, changing what brokers are permitted to do and how they must justify their recommendations.

What Is the Best Interests Duty?

Best Interests Duty is a legal obligation introduced under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, taking effect from 1 January 2021. It applies to all mortgage brokers and credit assistance providers operating under the National Consumer Credit Protection Act 2009.

BID was a direct legislative response to findings of the Hayne Royal Commission, which identified cases where brokers prioritised their own financial interests over clients’. BID made acting in the client’s best interest a mandatory legal requirement, not merely an ethical expectation. Our mortgage broker service page explains how this shapes the way we work with every client.

The Difference Between “Not Unsuitable” and “Best Interests”

Before BID, the standard for credit assistance was that a loan must be “not unsuitable” — it broadly fits the borrower’s needs and they can afford to repay it. This is a minimum threshold: the loan isn’t wrong for you.

Best interests is a significantly higher bar:

A loan can be “not unsuitable” but still carry a higher interest rate, unnecessary fees, or missing features — if a better alternative existed and was overlooked, the recommendation falls short of BID.
Under BID, where multiple options meet your needs, your broker must recommend the one that genuinely serves your interests best — even if another option pays higher commission to the broker.

Notably, BID applies to brokers — not to banks and their employees, who remain subject to the lower “not unsuitable” standard under responsible lending obligations. This asymmetry means you’re actually better protected working with a broker than going directly to a bank. Our post on how commissions work explains exactly how conflicts of interest are managed under BID.

The Conflict Priority Rule

BID includes a specific conflict priority rule: where a conflict of interest exists between the broker’s interests and the client’s interests, the broker must prioritise the client’s interests. This is not a guideline — it’s a legal requirement.

The most common conflict in broking is commission. If Lender A pays a higher commission but Lender B’s product better suits your circumstances, your broker is legally required to recommend Lender B. Recommending Lender A to maximise commission would be a clear breach of BID.

Clawback creates a related conflict — a broker could theoretically avoid recommending refinancing to protect ongoing trail commission. Under BID, this is not permissible. If refinancing is in your best interest, your broker must raise it, regardless of the financial cost to them.

What BID Means in Practice: What to Expect From Your Broker

Under BID, your broker must:

Conduct a thorough needs analysis: Asking detailed questions about your income, expenses, objectives, risk tolerance, and plans — not just loan size.
Compare a genuine range of options: Assess multiple lenders and products, and be able to explain why the recommended product is the best fit for your specific situation.
Document their reasoning: Records must be maintained showing how the recommendation was determined to be in your best interest. ASIC can (and does) review this documentation during compliance audits.
Disclose conflicts of interest: Volume bonuses, tiered servicing arrangements, referral relationships — these must all be disclosed.
Prioritise your interests when conflicts exist: Not just in spirit, but demonstrably, with supporting documentation.

A broker who provides credit assistance without genuinely understanding your situation is not meeting their BID obligations. You can review our credit guide at any time for details on our assistance process, commission arrangements, and your rights to request a preliminary assessment report. You can also visit our FAQ page for common questions about working with Lagos Financial.

ASIC Enforcement: The Stakes Are Real

BID is actively enforced by ASIC. Brokers who breach it face civil penalties, licence cancellation, and in serious cases, criminal liability. Updated breach reporting obligations from 1 October 2021 require licensees to report significant breaches within 30 days — meaning BID failures are more likely to surface through mandatory reporting than ever before.

For you as a consumer, BID gives you a legal basis to challenge advice you believe wasn’t in your best interests. Complaints can be raised with AFCA (Australian Financial Complaints Authority) at no cost. Learn more about Lagos Financial and how we structure our advice process around these obligations.

How Lagos Financial Meets Its BID Obligations

At Lagos Financial (ACL 546774, AFCA 98399), BID compliance is embedded in how we operate. Every engagement starts with a thorough needs analysis. Loan recommendations include a Credit Proposal Disclosure explaining the recommendation and disclosing estimated commissions. We maintain and disclose a gifts and hospitality register on request, disclose our full lender panel including volume-based arrangements, and conduct ongoing loan reviews to identify when refinancing may serve your interests — even when that affects our own income.

Frequently Asked Questions

Does Best Interests Duty apply to bank employees?

No. BID applies to mortgage brokers and credit assistance providers — not to bank staff or lenders directly. Bank employees are subject to the lower “not unsuitable” standard under responsible lending obligations. This means broker clients have stronger legal protection than those who go directly to a bank.

What can I do if I think my broker didn’t act in my best interests?

Raise it directly with the broker first — they’re required to have an internal complaints process and respond within 30 days. If unresolved, escalate to AFCA (afca.org.au, 1800 931 678). AFCA membership is mandatory for all licensed brokers, and there’s no cost to you to lodge a complaint.

Does BID mean my broker must find me the cheapest rate?

Not automatically. “Best interests” means the loan that best serves your overall circumstances and objectives — not simply the lowest rate. A slightly higher rate on a loan with offset account functionality may genuinely be better for a client with strong savings. Your broker must explain why their recommendation is the best fit, with the reasoning documented.

When exactly did Best Interests Duty come into force?

BID took effect on 1 January 2021, as part of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020. It was one of the most significant changes to mortgage broking regulation since the introduction of the National Consumer Credit Protection Act 2009, and represents a direct legislative response to Royal Commission findings about conflicts of interest in broking.

Work With a Broker Who Takes BID Seriously

Best Interests Duty is not a box-ticking exercise at Lagos Financial — it’s the foundation of how we work with every client. You deserve advice that’s genuinely in your corner, documented thoroughly, and free from hidden conflicts. Book a complimentary assessment and experience what working under a genuine Best Interests framework looks like in practice.