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Financial Advisers Get Wake-up Call As Court Declares 'Best Interest' Duty Breached


A new, more client-focused regime for financial advisers has been cemented with the corporate watchdog winning the first case against a licensee since the introduction of financial planning law reform.

The finding by the Federal Court that a Melbourne-based financial advice firm had breached the Corporations Act is the first indication of how the Future of Financial Advice reforms will work in practice.

On Tuesday the Federal Court declared that licensee NSG Services had breached the "best interest" obligations in the Corporations Act that were introduced under the FOFA laws, which became mandatory in 2013.

The court also found the advice firm had failed to take reasonable steps to ensure they provided advice appropriate to its clients.

Finding First

"This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate," the Australian Securities and Investments Commission deputy chairman Peter Kell said.

In June 2016 the corporate watchdog commenced proceedings against NSG Services seeking declarations of breaches and financial penalties.

The matter related to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015.

"On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements," ASIC said in a statement. The corporate watchdog has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty is yet to be fixed.


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