Best Interests Duty explained: what it guarantees and what it doesn’t

Understanding Best Interests Duty: what it really guarantees (and what it doesn’t)

Best Interests Duty (BID) is a legal obligation on mortgage brokers to put your interests ahead of their own when giving home loan advice. It applies to most retail home loan and consumer credit scenarios, and is enforced by ASIC. But BID does not guarantee you the lowest rate, the “perfect” loan, or protection from every bad outcome.

This guide unpacks what BID actually requires, where it stops, and how to use it this week to make a better decision about your broker, your bank, or your next loan.

Quick answer: what Best Interests Duty does and doesn’t do

1. What BID does guarantee

• Your mortgage broker must put your interests ahead of theirs and their licensee’s.
• They must investigate and compare relevant options, not just push one lender.
• They must be able to explain why the recommended loan is in your best interests, given your goals and circumstances.
• They must prioritise features and risks that matter to you, not just rate.

2. What BID does not guarantee

• That you’ll get the absolute lowest rate in the market on any given day.
• That the loan will be perfect for every possible future scenario.
• That every potential conflict of interest disappears (commissions still exist).
• That you can’t make a poor decision if you ignore advice or key facts.

BID makes the advice process safer and more structured. It does not remove the need to ask questions, compare options, and choose an adviser who actually fits you – something we cover in more depth in How to Pick the Mortgage Broker Who Actually Fits You.

1. What is Best Interests Duty in plain English?

1.1 The law in a sentence

Best Interests Duty is a legal requirement introduced after the Banking Royal Commission. Since 1 January 2021, mortgage brokers must:

Act in the best interests of their retail clients when providing credit assistance, and prioritise the client’s interests if there is a conflict.

ASIC’s guidance (RG 273) spells out how brokers should do this in practice.

1.2 When BID applies – and when it doesn’t

BID applies when a mortgage broker is dealing with a retail client and giving credit assistance. In practice that usually includes:

• Owner-occupier home loans
• Investment property loans in your personal name
• Refinances and restructures of existing home/investment loans
• Equity release for renovations, cars, debt consolidation, or small business

It does not generally apply to:

• Credit provided directly by a bank to its own customers (banks have a different, weaker obligation)
• Many small business and commercial property loans in companies or trusts
• Purely factual information or advertising where no “credit assistance” is given

If you’re a self-employed borrower using equity for business purposes, you might have both BID-covered and non-BID products in the same conversation. That’s one reason coordinated advice from a broker who is also a tax adviser and understands business cashflow can be so important.

1.3 BID vs the old “not unsuitable” test

Before BID, brokers and banks both had to make sure a loan was “not unsuitable” – essentially that it didn’t obviously fail the responsible lending rules (e.g. repayments clearly unaffordable).

Under BID, brokers now have a higher bar:

• They must actively consider what is best for you among the options they can access.
• They must prioritise your interests where there’s a conflict (e.g. different commission levels).

Banks, when selling their own products, are still largely in the “not unsuitable” world, not the “best interests” world – an important distinction explored further in Rose Bay mortgage broker or big‑4 bank? What really changes.

2. Bank vs broker: who owes you what, legally?

2.1 Core obligations compared

This is why around 70% of new Australian home loans now go through brokers – not only for access to more lenders, but also for the higher advice standard and help navigating complex policies.

2.2 What this actually means for your decision

If you go to a bank directly:

• The banker must ensure the loan isn’t clearly unsuitable, but doesn’t have to test whether another bank or structure is better for you.
• They are there to sell their bank’s products. That’s their job.

If you go to a mortgage broker:

• They must consider and compare realistic lender options on their panel that fit your situation.
• If they recommend lender A instead of lender B, they must be able to show why that meets your goals better, beyond just paying them more.

But this doesn’t mean every broker is equally thorough. Quality still varies, which is why guides like Bank vs Broker: How Many Lenders You Really Need On Your Side matter when you’re choosing who to work with.

3. What Best Interests Duty actually requires brokers to do

3.1 Understand your situation and goals in detail

Under BID, a broker can’t just grab a pay slip and pick a lender. They must make reasonable inquiries about:

• Your income (including self-employed, variable, bonus, rental)
• Your existing debts, expenses, and dependants
• Your short and long-term goals (e.g. upgrade, invest, keep cashflow flexible)
• Your risk tolerance, preferences (fixed vs variable, offset, IO vs P&I)
• Any foreseeable changes (maternity leave, business volatility, retirement timeframe)

If you’re self-employed, this often means deeper questions about business stability and buffers – consistent with the dual-stress test idea in our self-employed borrowing guides.

3.2 Research and compare relevant options

BID doesn’t force a broker to analyse all 60+ lenders on their aggregator panel. ASIC’s view is more practical:

• They must consider a reasonable range of options that are likely to meet your needs.
• They can focus on a set of actively used lenders suited to your profile.
• They shouldn’t ignore clearly better options in that set without a good reason.

For example, if you’re a PAYG first-home buyer with 15% deposit and straightforward credit:

• Broker might compare 4–6 mainstream lenders that like your profile.
• They should note any relevant offers (e.g. LMI discounts, cashbacks) that genuinely improve outcomes – not just chase promos.

For a self-employed borrower relying on BAS and bank statements, they may need to consider more niche “alt-doc” lenders as well (see Using Bank Statements and BAS for Your Home Loan: A Practical Guide).

3.3 Recommend a loan and show the reasoning

Brokers must form a view about what is in your best interests and be able to explain why. That usually means weighing:

• Interest rate and total cost over a realistic period
• Fees (upfront, ongoing, break costs, package pricing)
• Features (offset, redraw, IO vs P&I, multiple splits)
• Policy fit (how likely you are to be approved and on what terms)
• Future flexibility (e.g. ability to use equity for renovations or business)

Worked example

Say you’re looking at a $900,000 owner-occupier loan over 30 years, 80% LVR.

• Lender A: 5.99% variable, full offset, low annual fee
• Lender B: 5.84% variable (0.15% cheaper), no offset, redraw only

Monthly P&I repayment estimates:

• Lender A: about $5,393 per month
• Lender B: about $5,324 per month
  Difference: $69 per month ($828 per year)

If you keep a consistent $40,000 in your offset, the interest savings with Lender A can easily exceed that $828 per year, and your money stays fully liquid. Under BID, a broker could reasonably recommend Lender A as in your best interests, even though the headline rate is slightly higher, if the offset feature aligns strongly with your goals.

3.4 Prioritise your interests when conflicts exist

Conflicts of interest will always exist in lending:

• Different lenders pay different commissions.
• Some lenders are faster or easier to deal with.
• Some aggregators or franchises promote certain lenders.

BID doesn’t ban these, but it does require brokers to:

• Avoid conflicts where possible.
• Disclose relevant conflicts.
• Prioritise your interests when deciding what to recommend.

So if Lender C pays a higher commission but offers weaker features or more risk, a broker should not recommend it just because it pays more.

Later in this content cluster, you’ll see how this links with commission structures and disclosure documents, but BID is the overarching duty that keeps the focus on your outcome.

4. What BID does not protect you from

4.1 It doesn’t guarantee the lowest possible rate

BID is about suitability and priorities, not winning a race to the absolute cheapest rate in Australia that day.

Reasons a broker might recommend a loan that isn’t the lowest advertised rate:

• Very low-rate lender has slow approvals and you’re on a tight contract deadline.
• Cheaper product lacks key features you value (offset, portability, IO period).
• Lender’s policy is tighter and may reduce your maximum borrowing capacity.
• Lender is known to apply conservative valuations in your area, risking a lower LVR.

You can still ask: “What’s the best rate on your panel that would approve me, and why wasn’t that chosen?” A good broker should be able to answer clearly.

4.2 It doesn’t stop every bad outcome

BID can’t eliminate:

• Market risk (property values falling, rents dropping)
• Personal risk (job loss, business downturn)
• Interest rate risk (RBA hikes – recent Roy Morgan reports show mortgage stress rising as rates increase)

A broker must structure the loan sensibly and warn you about key risks, but they can’t control the economy or your future income. You still need buffers and a clear plan B.

4.3 It doesn’t cover every product or entity structure

BID mainly protects retail clients in personal capacity. It won’t always apply where:

• The borrower is a company or trust only.
• The primary purpose is commercial (e.g. funding business working capital).
• The product is a purely commercial facility.

In practice, many brokers apply BID-style thinking even for business and SMSF lending, but the legal duty may differ. This is another reason you want someone who understands both personal and business finance, not just tick-box compliance.

4.4 It doesn’t replace your own decision-making

You still need to:

• Read key documents (Credit Proposal, loan contracts, disclosure forms).
• Ask questions until you’re satisfied.
• Be honest about your income, expenses, and plans.

If you ignore warnings, understate expenses, or push for higher risk than advised, BID can’t completely shield you from consequences.

5. How to use BID this week: questions to ask and red flags

5.1 Five questions to ask any mortgage broker

Use these in your next broker meeting or call.

1. “How does Best Interests Duty affect the way you’ll research options for me?”
   Look for specific processes – not vague statements like “we always do the right thing”.

2. “Roughly how many lenders do you actively use for clients like me?”
   Most people don’t need 60 lenders – they need 8–15 well-chosen ones (see Bank vs Broker: How Many Lenders You Really Need On Your Side).

3. “Can you walk me through 2–3 other options you considered, and why you didn’t recommend them?”
   A BID-compliant broker should be able to answer this without scrambling.

4. “How are you paid on this loan versus the alternatives?”
   Ask about upfront and trail commissions, and whether any options would have paid them more but weren’t chosen.

5. “If my situation changes in 2–3 years, how might this loan help or hurt me?”
   You’re checking that they’re thinking beyond settlement day.

5.2 If you’re going to a bank instead

If you plan to speak to your bank directly, ask:

• “Are you required to act in my best interests, or just make sure the loan is not unsuitable?”
• “What other options exist outside your bank that might suit someone like me?”
• “If I came back in two years wanting to invest, how might today’s structure limit me?”

Then use a broker as a second opinion, or at least read Do Banks Give Better Home Loan Deals If You Go Direct? before you sign anything.

5.3 Red flags that BID might not be taken seriously

Watch out for:

• Heavy focus on one lender from the first meeting, without exploring others.
• No written comparison or reasoning – just “this is the best rate I’ve got for you”.
• Dismissing your questions about commission or alternatives.
• Pressure to sign documents quickly without explaining features and risks.

If you see these, consider walking away. BID is law; it’s not optional.

Best Interests Duty shapes each step of a broker’s advice process.

6. Common scenarios: how BID plays out in real life

6.1 First-home buyer on a tight budget

You’re buying a $750,000 apartment with 10% deposit, borrowing $675,000.

• Lender X offers slightly lower rate but higher LMI and tighter policy, making approval riskier.
• Lender Y has a marginally higher rate but lower LMI and a first-home-buyer package.

Under BID, a broker may recommend Lender Y because:

• Your cash at settlement is lower.
• Approval odds are higher given your income and credit file.
• You keep more buffer in your offset.

Even if Lender X looks cheaper on a comparison site, the overall risk-adjusted outcome may be worse for you.

6.2 Self-employed refinance after a tough year

You’re self-employed, recovering from a quieter trading year. Your current rate is 7.20%. Two options emerge:

• Mainstream lender with sharp rate, but they want full two years of strong tax returns (which you don’t have yet).
• Alt-doc lender using BAS and bank statements, rate 0.60% higher than mainstream but still 0.60% better than your current loan.

BID allows a broker to recommend the alt-doc refinance if:

• Staying put keeps you at a clearly uncompetitive rate.
• The new loan is affordable under stress (e.g. APRA 3% buffer).
• There’s a realistic plan to move you back to mainstream once financials improve.

But they should also make sure you understand the higher cost and encourage you to reassess as soon as you qualify for a better deal.

6.3 Busy professional considering DIY

You’re a first-time buyer with a strong PAYG income and good savings. DIY feels tempting because “brokers just chase commission”.

Under BID, a good broker can often:

• Map out the next 5–10 years of likely moves (upgrade, invest, kids).
• Show how different loan structures and offsets affect your flexibility.
• Help avoid mistakes that DIY borrowers often make (see Why DIY Home Loans Often Cost More For First‑Time Buyers).

BID doesn’t stop you going DIY; it just means the advice you get from a broker has to reach a higher standard than a sales chat at a branch.

Brokers and banks are bound by different legal obligations when advising you.

7. Making BID work for you: a one-week action plan

If you want to move forward this week without drowning in theory, here’s a practical plan.

Day 1–2: Clarify your non-negotiables

Write down:

• Your top three goals for the next 3–5 years (e.g. buy home, start family, invest).
• Your maximum comfortable monthly repayment, not just the bank’s maximum.
• Any future changes you can reasonably foresee (maternity leave, business expansion).

This gives a broker something concrete to optimise around.

Day 3–4: Shortlist who you’ll speak to

Read:

• Choosing Between Local Broker, Online Lender and Bank Branch in Australia
• Online, Phone or Local Mortgage Broker: How To Actually Choose

Then:

• Shortlist 2–3 brokers whose style and expertise match you.
• Optionally, keep your main bank as a comparison point.

Day 5–6: Have structured conversations

With each broker or bank, ask the five BID questions from Section 5.1. Take notes on:

• How clearly they explain their process.
• Whether they talk about your goals more than their product.
• How open they are about pay and conflicts.

Day 7: Decide and act

Pick the adviser who:

• Explains why their recommendation is in your best interests.
• Shows they can think a few years ahead, not just to settlement.
• Makes you feel you can ask “dumb” questions without judgement.

Then commit to next steps: full pre-approval, refinance application, or a more detailed strategy session that integrates tax and business planning if relevant.

Targeted questions help you make Best Interests Duty work for you.

FAQs about Best Interests Duty for Australian borrowers

1. Does Best Interests Duty mean my broker must find the absolute cheapest loan?

No. BID requires your broker to act in your best interests, which means weighing rate and other factors like features, approval likelihood, and future flexibility. A slightly higher-rate loan with an offset and more generous policy can, in many cases, be in your best interests. You can still ask them to show you the cheapest realistic option and explain why it was or wasn’t recommended.

2. Are banks also subject to Best Interests Duty when I go to them directly?

No. At present, BID applies to mortgage brokers dealing with retail clients, not to banks selling their own products. Banks must still comply with responsible lending and broader conduct rules, but they do not have to compare their products to other lenders or prove that their offer is the best available in the market for you.

3. How do I know my broker is actually complying with BID?

Look for a clear fact-find process, discussion of your goals, written comparisons, and a tailored explanation of why a specific loan was recommended. You should see evidence that multiple options were considered and that they can explain the trade-offs between them. If your questions about alternatives or commissions are brushed aside, that’s a warning sign.

4. Does Best Interests Duty apply to investment and business loans?

BID generally applies to retail clients taking out consumer credit, which includes many investment property loans in personal names. For loans in company or trust names, or where the primary purpose is business or commercial, BID may not legally apply. Many high-quality brokers still use BID-style reasoning across all lending, but you should ask how they approach business or commercial facilities.

5. Can I complain to ASIC if I think my broker breached BID?

Yes, but the usual first steps are to complain to the broker’s internal dispute resolution process, then to the Australian Financial Complaints Authority (AFCA) if it’s not resolved. ASIC can take regulatory action for serious or systemic breaches. Keep copies of emails, recommendations, and any documents that show what was discussed and why a loan was recommended.

6. If I ignore my broker’s warnings, is it still their responsibility under BID?

Brokers must give advice in your best interests based on accurate information and reasonable assumptions. If they clearly warn you about risks and you insist on proceeding against that advice, responsibility becomes more shared. That said, a good broker will document those discussions carefully and may even decline to proceed if they feel the arrangement would be clearly inappropriate.

Key takeaways

• Best Interests Duty lifts the standard for mortgage brokers above the old “not unsuitable” test, but it does not guarantee the absolute cheapest loan.
• Banks are not bound by BID when selling their own products; they only need to ensure loans are not unsuitable.
• BID requires brokers to understand your goals, compare realistic options, and explain why a recommended loan is in your best interests.
• BID does not cover every product type or entity structure, and it cannot remove market, rate, or income risks.
• The quality of the individual broker still matters – use structured questions and comparison conversations to choose someone who genuinely fits your situation.

Ready to see how BID should work in practice for you? Book a free 15‑minute strategy call at localknowledge.finance/consult and get a joined-up view of your tax, your loan, and your next property move – from a CPA, tax agent and broker in one conversation. Or, if you’re just starting to explore options, try our borrowing power and repayment tools at localknowledge.finance/tools to frame your next discussion.

General advice only.