This is the first part of a blog series about how automated
advice providers can ensure compliance with the best interests
duty. In this blog entry, we will consider the best interests duty.
Importantly, the same law applies where advice is provided by a
person or by digital means. We will examine some of the challenges
that arise when providers offer automated advice.
The best interests duty
Section 961B of the Corporations Act 2001 (Cth) ("the
Act") requires a provider of financial product advice to act
in the best interests of the client in relation to the advice. This
duty will be satisfied if the provider proves that it has met the
following safe harbour requirements.
The provider must first identify the objectives, financial
situation and needs of the client. Next, they must identify the
subject matter of the advice. Then they must identify the
client's relevant circumstances. This refers to the objectives,
the financial situation and the needs of the client that would
reasonably be considered as relevant to the advice sought on the
subject matter. If any of the information relating to the
client's relevant circumstances is incomplete or inaccurate,
the provider must make reasonable enquiries to obtain complete and
Further, the provider is obliged to assess whether they have the
expertise required to provide the client the relevant advice. If
they do not possess the necessary expertise, they must decline to
provide the advice. If it does seem reasonable to recommend a
financial product, the provider must conduct a reasonable
investigation into the financial products that might achieve the
client's objectives, and assess the information gathered in
this investigation. It is crucial that all judgements in advising
the client are based on the client's relevant
Lastly, the provider must take any other step that would
reasonably be regarded as being in the best interests of the
client, in light of the client's relevant circumstances, which
you will recall are those circumstances relevant to the advice
sought on the subject matter.
Section 961(6) of the Act makes it clear that personal financial
product advice can be offered through a computer program. The above
duty and associated requirements are, therefore, relevant to both
traditional providers and automated/digital providers.
What are the compliance challenges facing automated advice
ASIC defines digital advice as the provision of automated
financial product advice using algorithms and technology, and
without the direct involvement of a human adviser. An automated
advice provider is bound to face certain challenges in complying
with s961B. This is due to the fact that computers have limited
capacity and cannot undertake a conversation with clients.
Obtaining and synthesising clients' information via an
artificially constructed algorithm necessarily restricts the extent
to which the client can receive personalised and tailored
Stay tuned for our next blog which will discuss some of the
measures digital advice providers can take to ensure compliance
with the Act, drawing on ASIC's recent
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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