Documenting the Best Interests Duty: the Safe Harbour Is a Burden of Proof

Section 961B(1) of the Corporations Act is one sentence: the provider must act in the best interests of the client in relation to the advice. Subsection (2) is the part advisers learn, the seven steps. It is easy to read them as a process to follow. The words that open the subsection say something sharper.

The provider satisfies the duty, s961B(2) says, "if the provider proves that the provider has done each of the following". The safe harbour is not available to an adviser who did the steps. It is available to one who can prove they did. That makes the client file the whole of the defence, and it is worth going through the steps with that in mind.

Step by step, and what proves it

(a) Identified the objectives, financial situation and needs the client disclosed through instructions. The proof is the client's own account, captured: the fact find, notes of what the client said in the meeting, and the instructions in their words. A recording of the meeting is a record too. RG 175.337 lists audio recordings among the forms records may take.

(b) Identified the subject matter of the advice sought, explicitly or implicitly, and the client's relevant circumstances. This step is where scope is set, and the Note to s961B(2) is explicit that subject matter "may be broad or narrow", so the subsection anticipates scaled advice. The proof is a written scope: what the advice covers, what it does not, and why. An SoA that puts areas out of scope without saying why gives a reviewer less to go on.

(c) Made reasonable inquiries where it was reasonably apparent that information about the client's relevant circumstances was incomplete or inaccurate. The proof is the inquiry itself: the follow-up question, the request for the statement that was missing, the file note of the answer. Where the gap was never closed, s961H requires a warning that the advice is, or may be, based on incomplete or inaccurate information, and s947B(2)(f) requires the SoA to set out or record it.

(d) Assessed whether the provider has the expertise to advise on the subject matter and, if not, declined. A file can easily say nothing about this step, because an adviser who has the expertise has little reason to write down that they checked. A short note that the advice was within the adviser's authorisations and competence is the record.

(e) Where it is reasonable to consider recommending a product, conducted a reasonable investigation into the products that might meet the client's relevant objectives and needs, and assessed the information gathered. The proof has two parts and files tend to carry only the first. The investigation is the research on file. The assessment is the reasoning that compares the options for this client, including the products they already hold. ASIC's review of advice at vertically integrated institutions (REP 562, January 2018) named this as one of the two areas that most often led to a file being rated non-compliant: the adviser had not demonstrated they had sufficiently researched and considered the customer's existing financial products.

(f) Based all judgements on the client's relevant circumstances. The proof is the link between each recommendation and the circumstance it answers. REP 562 named this as the other area. A recommendation that could have been written for any client of the same age and balance does not prove the step.

(g) Taken any other step that, at the time, would reasonably be regarded as in the client's best interests. There is no fixed record for this step, which is exactly why it needs one. Whatever the adviser did beyond (a) to (f) for this client should be written down, because a step nobody recorded is a step nobody can prove.

What ASIC now says the file must hold

Since September 2024 the record-keeping expectation has a provision behind it. The ASIC Corporations (Record-Keeping Requirements for Australian Financial Services Licensees when Giving Personal Advice) Instrument 2024/508 inserts a section 912G into the Act as it applies to licensees and their authorised representatives. When personal advice is given to a retail client, s912G(2) requires the licensee to ensure records are kept of "the information relied on and the action taken by the provider that indicates" the adviser acted in the client's best interests and, where s961B(2) is being relied on, of "the information relied on and the action taken by the provider that satisfies the steps in that subsection". ASIC explains the provision at RG 175.341. It also requires records of the advice and the reasons it is appropriate, and, where there is a conflict, of what was done to give the client's interests priority.

RG 175.338 puts the consequence plainly: keeping records will be necessary for an advice provider to show they have satisfied the safe harbour, if they are relying on it.

Where the advice review comes in

The advice review in BackPro opens on a 16-point checklist, and its first seven items are the s961B(2) steps, (a) to (g), in the Act's order. A paraplanner cannot pass a review to the licensee until every item that applies is ticked.

A tick is a reviewer's statement that the step is evidenced on the file. It does not create the evidence. That limit is worth stating, because the most tempting way to fail the safe harbour is a checklist completed against a file that does not hold what the ticks claim. The checklist is useful exactly to the extent that it sends someone looking for the fact find, the inquiry, the research and the reasoning, and makes them say whether each is there.

The seven steps are a familiar list. Read as a burden of proof, each one asks a narrower question than "did you do this": where on the file is it, and would someone who was not in the meeting find it?