Aussie regulator takes first-ever ‘best interests’ action
Aussie regulator takes first-ever ‘best interests’ action – The Australian Securities & Investments Commission said it has launched its first-ever action against an advisory business for breaching the so-called “best interests duty” rule, introduced in 2013 under the country’s controversial Future of Financial Advice reforms.
The company in question is Melbourne-based NSG Services Pty Ltd, formerly known as the National Sterling Group Pty Ltd.
In a statement revealing the action, ASIC said it was “the first civil penalty action” it had ever taken against a regulated licensee, and that it was seeking declarations of breaches and financial penalties.
According to ASIC, NSG has been licensed since April 2008 to provide personal advice on risk insurance and superannuation products to retail clients, employing advisers to do so as its authorised representatives.
In its statement, ASIC said it is alleging that NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients, and that as a result, “on numerous occasions, NSG advisers did not act in the best interests of their clients”.
It also alleges that NSG had not provided appropriate training to its advisers to ensure clients receive advice in their best interests.
“Instead, ASIC contends that NSG has trained its advisers that it is almost always in a client’s best interest to take out some form of life risk insurance, regardless of a client’s financial situation; NSG’s written policies relating to legal and regulatory compliance and risk management have been inadequate, and in any event, not followed or enforced; [and], since 1 July 2013, on eight specific occasions, and because of advice provided by NSG advisers, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements,” ASIC said in its statement.
It also contends that NSG failed to perform “regular and or substantive performance reviews” of its advisers, and that disciplinary actions that should have been taken against those of its advisers who failed to act in compliance with their obligations under the Corporations Act has not been.
A hearing has been set for 8 July, in the Federal Court of Australia.
NSG officials weren’t immediately available for comment.
The Future of Financial Advice (FOFA) reforms were signed into law in Australia in 2011. They were among the first investor protection laws globally to include a ban on the use of commissions as a means of paying for financial advice, and are often likened to the UK’s Retail Distribution Review regulations, which were brought into being around the same time.
In 2014, following the election of a new government, the FOFA rules were reviewed, and there was talk of making changes that were seen as potentially watering them down, including talk of changing or eliminating the best interests duty rule.
‘Tip of the iceberg’
Brett Evans, managing director of Atlas Wealth Management, a Queensland-based advisory service, told International Investment that ASIC’s action against NSG could be “the tip of the iceberg”, as it appeared to suggest that the FOFA rules brought in three years ago are going to be properly enforced.
“As financial planners we’ve always been told that you must have a good reason when you make a recommendation to a client, and that recommendation needs to be in their best interest,” he said. “However, the difference now is that it’s law, and as you can see, legal proceedings can be brought against you if you don’t abide by it.”
Evans, whose speciality is looking after expatriate Australians, said expat Aussies will benefit from this if they get their advice from ASIC-regulated entities (such as Atlas).
“There are too many operators out there [in the offshore world] who aren’t held accountable to the advice they provide,” he said.
This article originally appeared in a interview with International Investment.