The penalty relates to financial advice provided to retail clients by Melbourne-based NSG, currently named Golden Financial Group, on eight occasions between July 2013 and August 2015, the Australian Securities and Investment Commission (Asic) said in a statement.
On these occasions the clients were commonly sold insurance and advised to roll over superannuation accounts that committed them to costly and unsuitable financial agreements.
Acting in the client’s best interests, known as best interests duty, was introduced under the Future of Financial Advice (Fofa) reforms in 2013 and is applicable to those who operate with an Australian financial services licence.
A warning to others
The court found that the failures by NSG to ensure compliance by its representatives were systemic in nature. Justice Moshinsky says he regarded “the contraventions as very serious ones”.
Asic deputy chairman Peter Kell said: “This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their Fofa obligations”.
“Asic will continue to pursue licensees who fail to do so,” he added.
Multiple shortcomings
The court found that NSG was deficient in many of its processes, including in training on legal and regulatory obligations to ensure clients received advice which was in their best interests.
Additionally, NSG did not conduct regular or substantive performance reviews for its representatives. The company’s compliance policies were also deemed inadequate, and did not address its representatives’ legal or regulatory duties.
Commission-only model
NSG had a “commission only” remuneration model, which meant that representatives would be paid commissions for sales of personal risk insurance products and superannuation rollovers.
Speaking to local media in April this year, an Asic spokesperson said in some instances the commission-only model 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,” the spokesperson said at the time.
NSG has agreed with Asic to pay the penalty amount immediately and made joint submissions to the orders. The firm was also ordered to pay A$50,000 in costs to Asic, and A$50,000 towards Asic’s costs for its investigation.
