In a landmark victory for the Australian Securities and Investments Commission (Asic), a court agreed on Tuesday with the regulator’s findings that Melbourne-based NSG Services breached laws requiring financial advice to be given in the best interests of the client.
The ruling is the first of its kind against a company for failing to comply with the Future of Financial Advice (Fofa) laws, introduced in 2012.
In a statement on its website, Asic said it found eight occasions between July 2013 and August 2015 where NSG failed to provide suitable advice to clients.
On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to “costly, unsuitable and unnecessary financial arrangements”, added the watchdog.
Commission-based model
The ruling also condemned NSG’s “commission only” remuneration model, which meant that advisers were more concerned with the sale of life insurance products and superannuation rollovers rather than the client.
Speaking to local media, an Asic spokesperson said in some instances this resulted in clients being double insured, while others had their pension pots depleted, resulting in financial loss to the client.
“The commission-based salary structures created an incentive for representatives to emphasise sales imperatives over compliance requirements and a culture in which the best interests and appropriate advice duties were more likely to be overlooked,” said the spokesperson.
Banks in trouble
The case is the latest against Australia’s financial advice industry which in recent years has been hit by a number of scandals.
Last December, Asic announced it is taking legal action against one of the country’s biggest banks, Westpac, for giving financial advice over the phone about superannuation transfers which again failed to put the “best interests” of its clients first.
Meanwhile, the other top three banks – Commonwealth Bank of Australia (CBA), ANZ, NAB – which provide the bulk of financial advice in the country, are also in trouble.
All four were ordered by Asic last year to repay at least A$178m (£111m, €125m, $136m) to more than 200,000 customers after charging them for financial advice they did not receive.
Asic has said it is looking to fine NSG for the breaches and a date for the hearing on a penalty will be fixed by the court.
