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.