Australian regulator moves to enforce 'client first' rule

Added 8th June 2016

The Australian corporate regulator has decided to prosecute a financial advisory business for alleged breaches of a new law which requires firms to ensure their advisers put the interests of clients first.

Australian regulator moves to enforce 'client first' rule

The Australian Securities and Investments Commission (ASIC) said on Wednesday it had begun a court action against Melbourne-based NSG Services (formerly National Sterling Group) (NSG) for breaches of the 'best interests duty' introduced under the Future of Financial Advice (FOFA) reforms.

The court case marks the first civil penalty action by ASIC against a licensee alleging breaches of the ‘best interests duty’.

ASIC claims that NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients. As a result, it said, on numerous occasions, NSG advisers did not act in the best interests of their clients. 

Inappropriate training

In the suit, ASIC said NSG had not provided appropriate training to its advisers to ensure clients receive advice in their best interests. Instead NSG had been training its advisers that it was almost always in a client's best interest to take out some form of life risk insurance, regardless of a client's financial situation.

The regulator said that 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

It added that neither regular nor substantive performance reviews of advisers had been conducted by NSG, and disciplinary action against advisers who did not act in a client’s best interest had not been taken.

The Future of Financial Advice reforms are part of the Corporations Act in Australia and are aimed at improving the trust and confidence of Australian retail investors in the financial services sector and at ensuring the availability, accessibility and affordability of high quality financial advice.

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About Author

Richard Hubbard

Group Editor

Richard Hubbard is the group editor at Last Word. He is responsible for the editorial content of International Adviser, Portfolio Adviser, Expert Investor and Fund Selector Asia. Richard previously worked for Thomson Reuters and has covered the financial services industry and investment themes from its offices in London, Singapore, Hong Kong and New York. Richard started his career at the Australian Financial Review in Sydney.


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