Risk Advice Group Hit for FoFA Breaches

A Melbourne based risk advice licensee has become the first advisory group to be prosecuted for breaches of the Future of Financial Advice (FOFA) reforms after being found to have failed to act in the best interests of clients.

The Federal Court found that NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) also failed to provide advice that was appropriate to the clients in a case brought by ASIC in June 2016 and heard by the Court on 30 March 2017.

The case related to financial advice provided by authorised representatives of NSG (see below) on eight occasions between July 2013 and August 2015 during which, ASIC claimed, clients were sold insurance and/or adviser to make superannuation rollovers that committed clients to costly, unsuitable, and unnecessary financial arrangements.

In ruling against NSG the Federal Court found it had breached section 961L of the Corporations Act which requires a financial services licensee ro ensure its representatives are compliant with the relevant sections of the Act relating to best interests and appropriate advice.

The Court also found a number of deficiencies in NGS’s processes and procedures, including:

  • 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.

ASIC has also sought pecuniary penalties and will return to the Federal Court at a date yet to be fixed for that hearing.

In a separate action, ASIC banned NSG’s two authorised representatives from providing financial services for a period of five years after it found they had also failed to act in the best interests of clients and that advice provided did not leave clients in a better position.

ASIC also stated that Adrian Chenh and Bill El-Helou failed to provide advice that was appropriate to the clients; and failed to provide financial services guides, product disclosure statements and statements of advice. El-Helou was also found to be not adequately trained, or not competent, to provide financial services

As authorised representatives of NSG, Chenh and El-Helou provided financial product advice, particularly in relation to superannuation and insurance.

Both have the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions and Chenh has exercised his right of appeal and filed an application for review on 21 March 2017.

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