CPD: Conflicts of interest – preparing for ASIC’s overhaul of RG 181

Identify, avoid, and manage both obvious and hidden conflicts, including those involving remuneration structures, related parties, product selection, and wholesale client classification.

Introduction

In late 2024, ASIC announced^[1] it would be consulting with licensees and other stakeholders as part of its review and update of several Regulatory Guides, including RG 181- Licensing: Managing conflicts of interest.

In a statement, ASIC said:

“In 2025, ASIC will consult with stakeholders to update some key RGs, taking into account law reform, insights from case law about the provisions and other relevant issues.”^[2]

Managing conflicts of interest appropriately remains one of the most enduring – and challenging – aspects of delivering compliant financial advice. ASIC’s review comes at a time when the Australian Financial Complaints Authority (AFCA) has called out conflicts of interest of one of two issues it has flagged for increased scrutiny^[3]. The review therefore presents a timely opportunity for advisers and licensees to revisit their current frameworks, embed stronger conflict governance practices, and align with emerging regulatory expectations.

Conflicts of interest – what’s the big deal?

Imagine it’s the holiday season – Christmas or Easter – and you are in the middle of a long drive to your destination. Your fuel warning light comes on and so you go to your navigation app for ‘nearest fuel’.

Let’s say the provider of that app had recently done a deal with a major oil company, and part of that deal was to prioritise its own petrol stations. Unbeknown to you, the app automatically identifies the nearest of its own outlets and starts navigating you towards it. You get to the petrol station, fill up, and get back on your way.

So what’s the problem?

While you ultimately got the product you needed (petrol), it’s possible that:

• That petrol station wasn’t literally the closest, meaning you used extra fuel.
• It wasn’t necessarily the one that required the least deviation from your direction of travel, possibly costing you time.
• It wasn’t necessarily the one with the cheapest petrol or the best facilities.

You may have got an outcome you were happy with, but it was an outcome that prioritised the interests of the navigation app and the oil company over your own.

Financial advice is no different.

Putting your clients in a quality product from a respected provider isn’t itself enough if there are forces – financial or otherwise –  that incentivise you to recommend that product over another. While on a prima facie basis a client may have received a good outcome, there is an underlying conflict of interest, which if unmanaged or undisclosed – or which the adviser isn’t even conscious of – can represent a significant risk to consumer outcomes and adviser integrity.

The enduring compliance challenge

Conflicts of interest have long been inherent in many financial advice business models. Prior to the Future of Financial Advice (FOFA) reforms of 2013, commissions, shelf space fees, volume-based bonuses, referral fees and generous ‘soft dollar’ benefits were common across the industry, used (legally) by providers to subtly or overtly influence adviser behaviour.

On July 1^st, 2013, many of these payments were outlawed^[4], with Division 4 of Part 7.7A of the Corporations Act 2001 prohibiting:

• commission-based payments tied to product sales
• volume-based bonuses from product providers
• certain soft dollar benefits.

Notable exemptions to these requirements include those for general and/or intra-fund advice, the provision of education, and life insurance commissions within the Life Insurance Framework (LIF) caps.

But whilst many of the most egregious examples of conflict were outlawed, the evolving advice landscape – of which platforms and managed accounts are now dominant features – means that potential conflicts of interest remain ever-present. Examples of scenarios with the potential for conflicts of interest to arise include:

• Life Insurance Commissions (Under LIF) – can still be seen to incentivise product sales over advice quality, especially in the context of policy switching or adding benefits.
• Asset based fees can be conflicted if they encourage advisers to recommend funds retention rather than paying down debt or withdrawals for lifestyle or non-investment purposes.
• Educational conferences can still meet soft dollar limits but subtly encourage product support.
• Licensee or platform arrangements that indirectly reward volume and which can influence APLs.
• Payments for intra-fund advice which always favours staying with that fund.
• Payments/bonuses based on retention metrics.

These and many other payments have the potential to shape adviser behaviour if not transparently managed.

Not all conflicts are obvious

Not all conflicts of interest relate directly to financial payments. One obvious example is the certification of sophisticated investors. ASIC has raised concerns about the current process for classifying investors as “sophisticated,” highlighting potential conflicts of interest when licensees make these determinations^[5].The regulator noted that the existing tests under sections 708(10) and 761GA of the Corporations Act rely heavily on subjective assessments by AFSLs, which may benefit from categorising clients as wholesale investors, thereby exempting them from certain consumer protections.

Another contemporary example relates to making changes to investments on behalf of clients, in response to market conditions. If some clients had the changes to their portfolio made ahead of other clients, that could potentially see them benefit from more favourable unit pricing. RG 181 specifically requires licensees to treat clients equitably, or rather ‘not advance one client’s interests unfairly ahead of other clients’ interests’^[6]. This requirement has undoubtedly contributed to the soaring popularity of Managed Accounts – where all client changes are made at the same time – with advisers.

Vertical integration – the biggest conflict of all?

Vertical integration – where the one business provides products and advice – was often regarded as being limited to large institutions, and as such was expected to disappear as an issue as these institutions began to exit advice.

But as two recent high-profile cases show, vertical integration is alive and well, and extremely problematic for consumers and the advice profession as a whole.

Case Study 1: First Guardian^[7]

In early 2025, ASIC applied to the Federal Court for the appointment of liquidators to Falcon Capital, the responsible entity for the First Guardian Master Fund, and for orders directing the liquidators to wind up the First Guardian fund. ASIC’s action came after a range of issues with the First Guardian fund had come to light, including:

• Substantial payments (over $23 million) being made from First Guardian’s assets to entities purportedly providing marketing, contrary to representations made to investors.
• The fund had invested in entities in which a director of the responsible entity had an association with or financial interest – conflicts which were not recognised or managed.

Case Study 2: Dixon Advisory

Dixon Advisory was a financial advice firm that also operated its own investment products — particularly the US Masters Residential Property Fund (URF) and related vehicles. Advisers at Dixon frequently:

• Recommended clients invest in in-house funds.
• Provided advice to SMSF trustees to direct assets into these funds.
• Failed to clearly disclose the firm’s financial interest in those products.

This created a conflict between the adviser’s obligation to act in the client’s best interests and the firm’s interest in directing funds to its own investments.

According to ASIC^[8] Dixon clients, at different times, accounted for 80 per cent of the investment in the property fund, which came to grief due to falling US property values (especially in New Jersey and New York), currency risk, and poor liquidity and governance. A senate committee heard^[9] how AFCA’s first determination related to the case involved a client who was “invested between 54 per cent and 75 per cent in related party product across a seven-year period”.

Ultimately, investors in the URF lost hundreds of millions of dollars, an outcome advisers today are indirectly picking up the tab for, in the form of an increased CLSR levy.

What RG 181 currently says about managing conflicts of interest

G 181 sets out the obligations and expectations for AFSL licensees in managing conflicts of interest^[10]. Originally issued in August 2004, the guide seeks to promote fairness, professionalism, and informed decision-making across the financial advice industry.

The central requirement is for licensees to maintain adequate arrangements to manage conflicts of interest that may arise in the course of providing financial services. This includes conflicts between clients and licensees (or their representatives), and among different clients.

ASIC defines a conflict of interest as a situation where the interests of a licensee or its representative diverge from those of the client. These may be actual, apparent, or potential^[11].

RG 181 emphasises three key mechanisms for managing conflicts:

1. Controlling conflicts – by identifying, assessing, and implementing responses (e.g. reallocating clients to different advisers, imposing internal restrictions, or disciplinary measures).
2. Avoiding conflicts – particularly where the conflict cannot be adequately controlled or disclosed without compromising service quality.
3. Disclosing conflicts – providing timely, prominent, specific, and meaningful disclosures to allow clients to make informed decisions.

The guide also sets out expectations around governance and implementation, including that:

• Conflicts management policies must be tailored to the nature and complexity of the business.
• Senior management must endorse and oversee the implementation.
• Monitoring and compliance must be active and documented.
• Remuneration structures must not create unmanageable or undisclosed conflicts.

ASIC expects licensees to retain records for at least seven years documenting conflicts, actions taken, and disclosures made. They are also urged to keep sample scripts and written disclosures to demonstrate compliance.

Finally, RG 181 makes it clear that the conflicts management obligation is not limited to retail clients. It applies equally to wholesale clients and across all financial services — whether advice, dealing, or operating a managed investment scheme.

Disclosure is not enough

ASIC makes clear in RG 181 that mere disclosure of a conflict will not be considered sufficient in most cases, a point recently reinforced by AFCA Senior Ombudsman Alex Sidoti^[12].

Speaking at a conference in late 2024, Sidoti told the audience:

“We’ve been looking specifically at the Conflicts Priority Rule, which is that rule that advisers have to give advice that prioritises the interests of the client over those of the financial firm or a related party of the financial firm.
A financial firm has to prioritise the best interests of the client over the interests of the financial firm or a related entity of the financial firm. So if a financial firm is recommending a product to its clients that it gets any benefit from, or that a related party of it gets a benefit from, it needs to really show that it’s prioritising the client’s best interest.
Mere disclosure is not enough.”

Smaller licensees are more likely to underestimate conflicts

Emphasising the extent to which smaller licensees maybe more at risk of non-compliance, a 2023 survey^[13] by financial services law firm Holley Nethercote found a direct relationship between the size of a licensee and their likelihood to admitting to having conflicts of interest.

Their ‘Compliance Trends Survey’ found the smaller the licensee, the less likely it was to perceive having conflicts of interest, with 77 per cent of licensees with under five representatives saying they had none.

What the RG181 review might address

ASIC has confirmed that the consultation process on RG181 will begin in Q3 2025, with revised guidance expected in early 2026^[14]. The review will likely focus on ensuring the guide reflects modern practices and legal expectations, which may include:

• clearer obligations around identifying and documenting conflicts
• improved standards for disclosure and informed consent
• stronger governance frameworks for managing structural and commercial incentives, and
• guidance on how licensees should monitor and supervise advisers

Importantly, the review will likely address the ‘inherent conflict’ in self-assessing wholesale (sophisticated) clients.

Preparing for possible changes

In anticipation of potential changes – and as a timely check on existing processes – advisers should audit their practices now for the following types of common conflicts:

1. Product recommendations: does your advice disproportionately favour products that generate revenue for your licensee or firm? Are you using in-house platforms or products without offering clear comparative analysis?
2. Remuneration and bonuses: do any of your remuneration structures (including KPI-linked bonuses) incentivise certain product choices or discourage holistic advice?
3. Referral arrangements: are your referrals to related businesses (mortgage brokers, accountants, insurance brokers) adequately disclosed and free from coercion?
4. Wholesale client classification: are you correctly applying the sophisticated investor test? Is your process robust, and are clients being properly informed of the rights they waive?

Building a conflict governance framework

To align with the anticipated regulatory updates, licensees and advisers can take several proactive steps:

• Implement a detailed Conflicts Register that is actively maintained and includes decisions and rationale
• Conduct staff training on identifying both structural and behavioural conflicts
• Embed compliance into workflows with prompts for disclosure, conflict recording, and third-party product comparisons
• Review fee and incentive structures to ensure they do not unduly influence advice outcomes.

In summary

Managing conflicts effectively isn’t just a compliance requirement – it’s a consumer protection imperative. Poor conflict management can erode consumer trust, create client harm, and result in disciplinary action against licensees and individual advisers. In a sector where trust is fundamental, transparency around conflicts is a critical factor in maintaining long-term relationships and delivering genuine value. Even more challenging for advisers is that not all conflicts are obvious or apparent.

The upcoming review of RG181 offers advisers a chance to test and possibly reset their approach to managing conflicts. By proactively identifying, managing and disclosing conflicts, advisers not only remain compliant, but also enhance client outcomes and position their businesses – and the advice profession as a whole – for long-term trust and success.

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References:
[1] https://www.moneymanagement.com.au/news/financial-planning/licensees-conflict-interest-under-asic-gaze
[2] Ibid.
[3] https://www.moneymanagement.com.au/news/financial-planning/mere-disclosure-not-enough-avoiding-conflicts-interest-breaches
[4] https://asic.gov.au/about-asic/news-centre/find-a-media-release/2013-releases/13-038mr-asic-releases-guidance-on-conflicted-remuneration-ban/
[5] https://www.ifa.com.au/news/34987-inherent-conflict-in-afsls-assessing-sophisticated-investors-asic#:~:text=investing%20in%20financial%20products
[6] https://download.asic.gov.au/media/1241003/rg181.pdf
[7] https://www.moneymanagement.com.au/news/financial-planning/asic-applies-liquidate-first-guardian-responsible-entity
[8] https://www.ifa.com.au/news/34591-dixon-clients-comprised-up-to-80-of-investment-in-urf
[9] Ibid.
[10] https://download.asic.gov.au/media/1241003/rg181.pdf
[11] https://www.hnlaw.com.au/its-time-to-dust-off-your-conflicts-of-interest-policy/
[12] https://www.moneymanagement.com.au/news/financial-planning/mere-disclosure-not-enough-avoiding-conflicts-interest-breaches
[13] https://www.professionalplanner.com.au/2023/07/wheres-the-conflict-smaller-afsls-believe-there-is-none/
[14]https://asic.gov.au/regulatory-resources/find-a-document/regulatory-document-updates/regulatory-developments-timetable/