In what represents the first successful prosecution of a financial planning licensee under the Future of Financial Advice (FoFA) regime, the Australian Securities and Investments Commission (ASIC) has succeeded in a Federal Court action against Melbourne-based financial advice firm NSG Services Pty Ltd.
The regulator announced today that it had pursued NSG over an alleged breach of the best interests obligations of the Corporations Act introduced under the FoFA reforms.
According to ASIC, the matter related to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015.
It said that on these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements.
The ASIC announcement said NSG had consented to the making of declarations against it and after a hearing on 30 March 2017 the Court was satisfied that declarations ought to be made.
The Court found that NSG’s representatives:
- breached s 961B of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and
- breached s 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.
Those breaches amounted to a contravention by NSG of s 961L of the Corporations Act, which provides that a financial services licensee must ensure its representatives are compliant with the above sections of the Act.
The Court made the declarations based on the following deficiencies in NSG's processes and procedures:
- NSG’s new client advice process was insufficient to ensure that all necessary information was obtained from, and given to, the client;
- NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;
- NSG did not routinely monitor its representatives nor identify deficiencies in the knowledge or skills of individual representatives;
- NSG did not conduct regular or substantive performance reviews of its representatives;
- NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG;
- there was an absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
- NSG had a “commission only” remuneration model, which meant that representatives would only be compensated by way of commission for sales of life insurance products and superannuation rollovers.
Commenting on the outcome, ASIC deputy chairman, Peter Kell said it represented the first of its kind and would serve to provide guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate".
ASIC has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the Court.