ASIC prosecutes on best interests duty

The Australian Securities and Investments Commission (ASIC) has targeted a risk-focused advice group for its first-ever action relating to alleged breaches of the Future of Financial Advice (FOFA) best interest duties requirements.

The regulator announced the move today saying the action had been initiated against Melbourne-based NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG).

It said this was the first civil penalty action ASIC had taken against a licensee alleging breaches of the best interests duty and that it was seeking declarations of breaches and financial penalties.

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The ASIC announcement said that since 3 April 2008, NSG had been licensed to provide personal advice on risk insurance and superannuation products to retail clients.

The announcement said that ASIC was alleging that NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients; and that, as a result, on numerous occasions, NSG advisers did not act in the best interests of their clients.

It said that, additionally, it was being alleged that:

  • NSG had not provided appropriate training to its advisers to ensure clients receive advice in their best interests. Instead, ASIC contends that NSG had trained its advisers that it is almost always in a client's best interest to take out some form of life risk insurance, regardless of a client's financial situation;
  • NSG's written policies relating to legal and regulatory compliance and risk management had been inadequate, and in any event, not followed or enforced;
  • since 1 July 2013, on eight specific occasions, and because of advice provided by NSG advisers, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements; and
  • regular and or substantive performance reviews of advisers had not been conducted, and disciplinary action against advisers who did not act in compliance with their obligations under the Corporations Act had not been taken.

The first hearing of the matter is listed before the Federal Court of Australia on 8 July 2016.

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This will be interesting to see played out...I would love to know the detail of the 8 cases. ie if a needs analysis actually conducting pointing to the need for the cover but "premium sustainability" due to premiums being more than contributions and growth within a super fund. I've seen more and more people on their 3rd marriage with new kids and debt up to their eyeballs. A balance does need to be struck but surely the lawyers will be arguing that ASIC is assuming the clients never actually need to claim? I shall be watching closely as I sometimes struggle with ASIC's narrow view on premium affordability being targeted at super accounts, surely they understand that the premiums need to come from somewhere...if they dont come from the super fund, they will come from their personal cashflow which can conflict with other goals and objectives of clients such as paying home off sooner.

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