The Australian Securities and Investments Commission (ASIC) is taking a financial planning company to court, accusing it of failing to act in the best interests of its clients.
It's the first time ASIC has taken action under rules introduced with the 2013 Future of Financial Advice (FOFA) reforms. In a statement ASIC said it commenced proceedings against Melbourne-based NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd).
"NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients," the statement said.
"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."
The measures introduced by ASIC in 2013 aimed to ensure planners only give appropriate advice to clients, and warn them of any incomplete or inaccurate information.
Brad Fox from the Association of Financial Advisers said he will watch the developments closely, but insisted most firms have always acted appropriately.
"What FOFA has done is create a much higher level of compliance to document that each particular piece of advice does meet the legal requirement," he said.
"There are more checks and balances in place to validate each piece of advice, so the cost of getting advice is under pressure. To-date, the evidence shows that financial advice practices have absorbed a lot of that cost themselves, and reduced the profitability of those businesses."
NSG Services did not respond to SBS's request for an interview. The case against them will commence in the Federal Court next month.
Changing landscape
Alexandra Kelly is the principal solicitor at the Financial Rights Legal Centre in Sydney. She receives calls almost daily from people whose lives are in disarray after following poor advice from financial planners.
"Some clients have nothing now," she said. "We've seen some really horrible cases of consumers who've had quite good insurance and they've gone to a financial adviser expecting to get quality advice.
"What's happened is they've replaced their policies and they've later found they have quite horrible conditions."
Gareth Colgan, a financial planner for Sydney-based firm Eqeus, said commissions from selling certain products are behind most instances of planners giving clients poor advice. It's an issue he decided to address before the laws were brought in.
"We decided to remove the conflicts of interest by taking commissions out of how we charge clients," he said. "There's many good advisers out there who charge a commission, but the trend in my opinion is going to be moving away from that."
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