The Australian Federal Court has imposed a civil penalty of A$1 million ($770,000) to Melbourne-based financial advice firm NSG Services (currently named Golden Financial Group) (NSG) for breaches of the best interests duty introduced under the Future of Financial Advice (FOFA) reforms.

This is the first civil penalty imposed on a financial services licensee for breaches of the best interests duty, Australian Securities and Investment Commission said in a statement.

The penalty relates to financial advice provided to retail clients by NSG advisors on eight occasions between July 2013 and August 2015. The clients were commonly sold insurance and advised to roll over the accounts of a organisational pension plan that committed them to costly, unsuitable and unnecessary financial arrangements.

The Court found that NSG’s representatives breached: - Failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations 

- Failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

The court also made the declarations based on a number of deficiencies in NSG's processes and procedures, including the following:  
 

- NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests. 

- NSG did not conduct regular or substantive performance reviews of its representatives.

- NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG.

- There was an absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor were the recommended changes implemented.

- NSG had a “commission only” remuneration model, which meant that representatives would be paid by way of commission for sales of personal risk insurance products and superannuation rollovers.

“This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA obligations,” ASIC deputy chairman Peter Kell said. “ASIC will continue to pursue licensees who fail to do so.”

NSG agreed with ASIC on the amount of the penalty immediately prior to the hearing on penalty, and made joint submissions as to the orders. The firm was also ordered to pay A$50,000 in costs to ASIC, and will also pay A$50,000 towards ASIC’s costs of its investigation into NSG.