ASIC financial adviser exam, Best interests duty, conflicted remuneration and fee consents question: priority rule in s961J

ASIC examBest interests duty, conflicted remuneration and fee consents

Ruth Okafor, 61, asks her adviser, Desmond Lau, to recommend a managed account. Two accounts suit her equally well on cost, features and risk; one is issued by Crestline Investments, which owns Desmond's licensee. Desmond records why both fit and recommends the Crestline account. Under the priority rule in s961J, his recommendation is BEST described as…

A not a breach in itself, if he put Ruth's interests first
B a breach: the licensee's group benefits from the choice
C permitted only if Ruth first signs a written conflict waiver
D permitted if the licensee's fee for it is disclosed in the FSG

Show the answer and explanation

Answer: A. not a breach in itself, if he put Ruth's interests first

Section 961J(1) of the Corporations Act 2001 (compilation 19 Sep 2026) requires a provider who knows, or reasonably ought to know, of a conflict between the client's interests and those of the provider, the licensee or their associates to give priority to the client's interests. It is a priority rule, not a ban on related products. Where two products are genuinely equal for Ruth and her interests come first, recommending Crestline's can comply. The group's benefit creates the conflict, but it does not on its own make the advice a breach. A signed waiver cannot displace a statutory duty, and disclosure in an FSG does not satisfy the priority rule. Standard 3 of the Code sets a separate, stricter ethical test.

Common mistake

Candidates over-read s961J as a ban; it is a priority rule, and disclosure is no substitute for it.

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