In a statement today, the Federal Court declared that NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.
ifa reported last year that ASIC took NSG Services to court alleging that the licensee failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients.
The case is the first finding of liability against a licensee for a breach of the FOFA reforms.
The Federal Court has found that NSG’s representatives breached section 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 also breached section 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients, the statement said.
“Those breaches amounted to a contravention by NSG of s961L 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 statement said.
The court made the declarations based on deficiencies in NSG’s processes and procedures.
The court found that 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 that was in their best interests, the court found.
Further, 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 and its compliance policies were inadequate, the statement said.
The court also said that 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.
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 that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the court.
Advisers receiving commission only is the companies way of avoiding payroll tax and superannuation.. These “advisers” were employees – possible class action brewing.
These guys sound like absolute cowboys and it seems ASIC has done everyone a favour by shutting them down. However it is quite disturbing to read the Federal Court’s comments about commissions. Commissions are perfectly legal for insurance advice as long the client is placed in a better overall position as a result of that advice. Commissions can place some clients in a much better position than if they had to pay the real upfront costs of advice via a fee for service alternative.
This case actually highlights that Best Interest Duty is a more than adequate legal tool to rein in bad advice. Proscribing payment methods is a complete irrelevancy.
Guess that means that we have the all clear about our best interests. With AMP life insurance premiums going up by 14% it looks like we are in for a great year
Didn’t Life insurance commissions get carved out of FoFA, meaning it is perfectly acceptable for an insurance only Financial Adviser to receive all of their revenue from insurance commissions? Not sure how they’d be getting commission on Super rollovers where no products offer it anymore.
So does this mean that a commission only model is now not in the best interests of a client?
Gav, the stuff they were doing is wrong. They were churning clients to make new commissions every year. They completely failed the best interest duty and deserve to have the book thrown at them. I for one hope the penalty is severe and acts as a deterant to the rest of the industry.
Clients should also have the option to pay for their advice through commission or fee for service.
Read news articles from last year (AFR for example). The group used high pressure tactics to sell life insurance products (without consideration to whether the product was needed) and rollover superannuation monies into Funds that didn’t align with risk profiles. To me that’s not in the client’s best interests. Commissions are perceived as an indicator of poor advice.
Guess this answers your question: https://www.ifa.com.au/news/17654-asic-commission-model-may-have-led-to-nsg-fofa-breaches?utm_source=IFA&utm_campaign=05_04_17&utm_medium=email&utm_content=1