October 30, 2017
A Melbourne based financial advice group has received a $1 million civil penalty for breaches of best interests duty related to advice related to life insurance.
The penalty was imposed by the Federal Court against NSG Services (NSG), which is currently named Golden Financial Group, and relates to advice provided to retail clients by NSG advisers on eight occasions between July 2013 and August 2015.
ASIC stated that clients of NSG were sold insurance and then advised to roll over superannuation accounts that committed them to costly, unsuitable and unnecessary financial arrangements.
The regulator began proceedings against NSG in the Federal Court in June 2016 (see: ASIC Moves Against Risk Licensee Over Best Interest Concerns) and in March 2017 the Court found the failures by NSG to ensure compliance by its representatives were systemic in nature.
Specifically, the Court found that NSG’s representatives breached the Corporations Act by failing to take reasonable steps to ensure they provided advice that complied with the best interests obligations; and by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.
At that time, NSG 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 declaration made by the Federal Court were based on a number of deficiencies in NSG’s processes and procedures, including the following:
- NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests
- NSG did not conduct regular or substantive performance reviews of its representatives
- NSG’s compliance policies were inadequate, did not address its representatives’ legal or regulatory duties, and were not followed or enforced by NSG
- An absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented
- NSG had a “commission only” remuneration model, which meant that representatives would be paid by way of commission for sales of personal risk insurance products and superannuation rollovers.
Additionally, NSG was also ordered to pay $50,000 in costs to ASIC, and $50,000 towards ASIC’s costs of its investigation into the group.
NSG is the first group to be prosecuted for breaches of the best interests duty required under the Future of Financial Advice reforms, and this is the first penalty imposed on a licensee for breaching those requirements.
ASIC has also previously banned two of NSG’s authorised representatives for a period of five years (see: Risk Advice Group Hit for FoFA Breaches).