FAE · ASIC Financial Adviser Exam
Lesson 1 of 3 in Best interests duty and remuneration rules
Who the Division 2 duties bind, what each of the seven safe harbour steps demands in practice, when to inquire, warn or decline, how the priority rule works and who pays for a breach.
Financial advice regulatory and legal obligations9 min read8 sections
Explained in full: The best interests duty (s 961B) explained for the exam
Checked against: Corporations Act 2001 (Cth), compilation No. 149 (19 Sep 2026): ss920A (via notes to ss961G-961J), 960A, 961, 961A, 961B, 961C, 961D, 961E, 961G, 961H, 961J, 961K, 961L, 961M, 961N, 961P, 961Q; ASIC RG 175 AFS licensing: Financial product advisers—Conduct and disclosure (issued 21 November 2024, numbering corrected December 2024): RG 175.141-175.152, 175.162-175.180, 175.185-175.278, 175.279-175.332; ASIC RG 244 Giving information, general advice and scaled advice (issued December 2012, note added December 2021), Section D (pointer only); ASIC Financial adviser exam: Exam preparation guidance v6.0 (September 2026).. Independent prep, not endorsed by ASIC.
This lesson serves two learning outcomes in ASIC's Exam preparation guidance v6.0 (September 2026): applying Chapter 7 of the Corporations Act to scenarios to identify provider obligations and breaches, and applying the best interests duty and related obligations in scenarios, including the consequences for the practitioner, the client and the industry. The reading list names Part 7.7A of the Corporations Act and RG 175.
ASIC's guidance says relevant statutory content is supplied with the questions, so the skill is applying s961B(2) to a fact pattern rather than reciting it. A scenario asks you to decide which step a provider missed, whether a gap calls for an inquiry, a warning or a refusal, whether a disclosure fixes a conflict, and who is liable. Our practice questions drill those four decisions.
Division 2 of Part 7.7A applies only to personal advice given to a retail client. General advice is outside it (RG 175.151).
| Provision | Rule | What it means in practice |
|---|---|---|
| s961 | The provider is the individual who gives the advice; each of two or more advisers is a provider | The duty sits with the person, not the firm, unless no individual can be identified or a program gives the advice |
| s961B(1) | Act in the client's best interests in relation to the advice | The core duty; s961B(2) is the safe harbour for proving it |
| s961G | Give the advice only if it would be reasonable to conclude it is appropriate, had the duty been met |
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Answer each one before you tap to see the answer and why. All are from the practice bank.
Leilani Ruatara, 44, a nurse, asks her adviser, Tomasz Wilk of Southbank Planning, for advice only on whether to make a A$20,000 personal deductible super contribution this financial year. Her fact-find records her salary, super balance and home loan, but lists her credit card debt as 'unknown'. The safe harbour step that this gap MOST directly engages is…
Answer: D. making reasonable inquiries to get complete and accurate information
Answer: Making reasonable inquiries to get complete and accurate information. Leilani's debt bears directly on whether tying up A$20,000 in super suits her cash flow and priorities, so Tomasz must follow up the apparent gap.
| A test of the result, separate from the process |
| s961H | Warn if the advice is based on information that is still apparently incomplete or inaccurate | Given at the same time and by the same means as the advice, or in the SOA |
| s961J | Give priority to the client's interests over your own, an associate's, the licensee's or the authorising representative's | Applies when you know, or reasonably ought to know, of the conflict |
A reduced duty applies where the subject matter is a general insurance product: steps (a) to (c) satisfy s961B(1) and the priority rule is switched off to that extent (ss961B(4), 961J(3)). A similar concession covers ADI staff advising only on basic banking and general insurance products, but advice on consumer credit insurance stays under the full duty (s961B(3); RG 175.181).
Several best interests obligations, such as making inquiries under s961B(2)(c) and warning under s961H, apply only when something is 'reasonably apparent'. Under s961C, something is reasonably apparent when…
Answer: B. it would be apparent to a careful provider with reasonable expertise
Answer: It would be apparent to a careful provider with reasonable expertise. Section 961C sets an objective test, not one based on what the client wrote or what the provider happened to notice.Why not the others:• the client has expressly told the provider about it in writing: a gap can be apparent without the client saying anything in writing.• the provider actually noticed it, judged by their own level of expertise: a provider who misses what a careful, reasonably expert adviser would notice cannot rely on their own lower expertise.• the licensee's compliance team has flagged it in the client file: a compliance flag may show something was apparent, but it is not the test.Rule: Something is reasonably apparent if it would be apparent to a person with a reasonable level of expertise in the subject matter of the advice, exercising care and objectively assessing the information the client gave (s961C).Source: Corporations Act 2001 (Cth) s961C (compilation No. 149, 19 Sep 2026)
Case study FAE-C10, question 1 of 4: Owen's income protection review. Owen Fitzgerald, 34, is a self-employed electrician in Ballarat earning about A$110,000 a year. He lives with his partner, Jess, a part-time nurse, and they rent. He has A$85,000 in super and A$30,000 in savings, and no debts apart from a A$22,000 van loan. Owen asks his adviser, Priya Raman, to review his insurance. He holds income protection through his super fund with a 90-day waiting period and a benefit payable to age 65, and his savings would cover about three months of expenses. Priya is an authorised representative of Granite Advisory, whose approved product list includes six insurers; two of them pay Granite a 'marketing allowance' each year. Priya recommends replacing his cover with a retail income protection policy outside super from one of those two insurers, with a 30-day waiting period and a higher premium paid from his cash flow. She obtains his consent to an upfront commission of 60% of the first-year premium. During the meeting Owen mentions he had back surgery two years ago, but Priya does not ask further questions because the new insurer's online quote did not raise it. Before the SOA is issued, Granite's compliance team reviews Priya's file against the best interests duty and the safe harbour steps. The MOST significant gap in her process is…
Answer: D. not following up his back surgery before recommending that he replace his cover
Answer: Not following up his back surgery before recommending that he replace his cover. Prior back surgery could lead to an exclusion, or a non-disclosure dispute, under a new policy, while his existing cover may carry neither, so it goes to whether replacing his cover is in his interests at all.Why not the others:• limiting her research to the approved list rather than…: an approved product list is acceptable if the investigation is still reasonable (ASIC RG 175).• moving his cover outside super, with premiums paid…: moving cover outside super can suit a self-employed client; it needs justifying, not avoiding.• obtaining his consent to the commission before he had received the SOA: commission consent must come before the policy is issued (s963BB(1)(b)), so obtaining it before the SOA is not a problem.Rule: Under s961B(2)(c), where it is reasonably apparent that information about the client's relevant circumstances is incomplete or inaccurate, the provider must make reasonable inquiries to obtain complete and accurate information.Source: Corporations Act 2001 (Cth) ss961B, 963BB (compilation No. 149, 19 Sep 2026); ASIC RG 175 AFS licensing: Financial product advisers—Conduct and disclosure (issued 21 Nov 2024)
Case study FAE-C96, question 3 of 4: Ben's general insurance advice. Ben Castellano is an authorised representative of Tasman Coast Advisory in Hobart. He advises retail clients on home and contents insurance as part of broader advice on super and life insurance. His client, Olivia Grant, 36, is a single physiotherapist earning A$95,000 a year. She has just bought a house worth A$720,000 with a A$560,000 mortgage, has A$110,000 in super with default death and TPD cover of A$150,000, and has no dependants. She asks Ben to recommend home and contents cover. Tasman Coast receives commissions from several general insurers. Ben gathers Olivia's details about the property, including its rebuild cost of A$480,000, its location next to bushland and the A$60,000 value of her contents. He compares three policies and recommends one that covers bushfire and flood. Before she applies, Ben obtains Olivia's consent to the commission after showing her the insurer's name and the commission range as a percentage of the premium. Olivia also asks Ben whether she should increase her life cover now that she has a mortgage, and mentions that her parents have offered to help if she ever cannot work. Olivia's question about her life cover takes Ben's advice beyond general insurance, and he agrees to include it in the same SOA as her home and contents recommendation. For the life cover part of the advice, Ben…
Answer: D. must meet the whole best interests duty, including the priority rule in s961J
Answer: Must meet the whole best interests duty, including the priority rule in s961J. Life cover is a life risk insurance product, so for that advice Ben must meet the whole duty in s961B, the appropriate advice rule in s961G and the priority rule in s961J.Why not the others:• can rely on the same three safe harbour steps…: the general insurance concession does not extend to life cover, even in a shared SOA.• must refer her to a life insurance specialist under s961B(2)(d): nothing suggests Ben lacks life insurance expertise, so s961B(2)(d) does not require a referral.• can meet the duty by giving her the life insurer's PDS…: a PDS and TMD are issuer documents, and handing them over does not meet the adviser's duty.Watch out: His inquiries should cover her mortgage, her income needs and what her parents' offer would really mean.Rule: The reduced safe harbour in s961B(4) (steps (2)(a) to (c) only) applies, and the priority rule is switched off (s961J(3)), only to the extent the advice is about a general insurance product.Source: Corporations Act 2001 (Cth) ss961B, 961G, 961J (compilation No. 149, 19 Sep 2026)
