Advice firm fined for breaching best interests duty

The Federal Court has slapped a Melbourne advice firm with a $1 million fine for breaching the best interests duty under the Future of Financial Advice (FOFA) reforms.

The corporate watchdog said this is the first civil penalty imposed on a financial services licensee for this kind of breach.

"This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA obligations," ASIC deputy chairman Peter Kell said in a statement.

"ASIC will continue to pursue licensees who fail to do so."

Costly and unsuitable products

The Melbourne-based firm, NSG Services - currently named Golden Financial Group - was found on several occasions to have advised clients to roll over superannuation accounts and buy insurance policies that committed them to costly, unsuitable and unnecessary financial arrangements.

The Court determined that NSG failed to take reasonable steps to ensure that they provided advice that complied with the best interests obligations and failed to take reasonable steps to ensure they provided appropriate advice to clients.

There were deficiencies in a number of NSG's processes and procedures, including that its training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests.

Further, NSG did not conduct regular or substantive performance reviews of its advisers.

The firm's compliance policies were found to be inadequate and did not address its representatives' legal or regulatory duties, and in any event, were not followed or enforced.

That's not all.

Commission only incentives

The Court also found that there was an absence of regular internal audits, and that issues identified by external audits conducted were not adequately addressed nor recommended changes implemented.

Lastly, NSG's "commission only" remuneration model meant that advisers would be paid by way of commission for sales of personal risk insurance products and superannuation rollovers.

The Court heared that the failures by NSG to ensure compliance by its representatives were systemic in nature, with Justice Moshinsky regarding the contraventions as "very serious ones."

In addition to the penalty, NSG was ordered to pay $50,000 in costs to ASIC and a further $50,000 towards ASIC's costs of its investigation into NSG.

ASIC commenced proceedings against NSG in June 2016, with NSG consenting to the making of declarations against it in March of this year.

After a hearing on 30 March 2017, the Court was satisfied that declarations ought to be made.

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