Financial services licensee found to have breached FOFA best interest duty

The Federal Court has found that NSG Services Pty Ltd, formerly National Sterling Group Pty Ltd, breached the best interests obligations introduced under the Future of Financial Advice (FOFA) reforms, in part relating to superannuation advice.

ASIC said this was the first finding of liability against a licensee for a breach of the FOFA laws.

“This matter relates to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015. On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements,” said ASIC.

“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 Court found that NSG representatives had breached sections of the Corporations Act by failing to take reasonable sets to ensure the advice they provided complied with the best interest obligations and was appropriate to the clients.

The Court found deficiencies in NSG’s processes and procedures, including failing to ensure that all necessary information was collected from clients, there was an absence of regular internal audits and issues raised by external audits were not adequately address.

NSG also has 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,” said ASIC.

ASIC Deputy Chairman Peter Kell said: “This finding, the first of its kind, provides 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 for NSG to pay pecuniary penalties. A date for the hearing on penalties will be set by the Court.

Two former representatives of NSG were banned by ASIC from providing financial services for five years.

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