Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd
[2017] FCA 345
•30 March 2017
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345
File number: VID 585 of 2016 Judge: MOSHINSKY J Date of judgment: 30 March 2017 Catchwords: CORPORATIONSLAW – financial advice – obligation to act in the best interests of the client – obligation only to provide advice to the client if it would be reasonable to conclude that the advice is appropriate to the client – where representatives failed to comply with ss 961B and 961G of the Corporations Act 2001 (Cth) in relation to personal advice provided to retail clients – where defendant failed to take reasonable steps to ensure that representatives complied with ss 961B and 961G – admitted contraventions by defendant – application by the parties for the making of declarations by consent Legislation: Corporations Act 2001 (Cth), ss 761G, 910A, 911A, 911B, 912A, 961B, 961G, 961K, 961L, 1317E
Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth)
Cases cited: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405
Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46
Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064
Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd (2009) 179 FCR 46
Panganiban v Australian Securities and Investments Commission (2016) 338 ALR 119
Date of hearing: 30 March 2017 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Category: Catchwords Number of paragraphs: 76 Counsel for the Plaintiff: Mr B Quinn QC with Ms K Burke and Ms E Levine Solicitor for the Plaintiff: Australian Securities and Investments Commission Solicitor for the Defendant: Mr M Bland, Mills Oakley ORDERS
VID 585 of 2016 IN THE MATTER OF NSG SERVICES PTY LTD (ACN 128 837 285)
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: NSG SERVICES PTY LTD (ACN 128 837 285)
Defendant
JUDGE:
MOSHINSKY J
DATE OF ORDER:
30 MARCH 2017
THE COURT DECLARES THAT:
Contravention of s 961K(2) of the Corporations Act
1.The defendant (NSG) contravened s 961K(2) of the Corporations Act 2001 (Cth) (the Act) by reason of its representative, other than an authorised representative, Van Trinh (Trinh), contravening s 961B(1) of the Act in providing advice to Person A (as referred to in the Agreed Statement of Facts which is annexed to the reasons for judgment in this proceeding, dated 30 March 2017 (the ASOF)) at and following the client meeting of 19 July 2013.
2.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Trinh, contravening s 961G of the Act in providing advice to Person A (as referred to in the ASOF) at and following the client meeting of 19 July 2013.
3.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Mustafa Ozak (Ozak), contravening s 961B(1) of the Act in providing advice to Person B (as referred to in the ASOF) at and following the client meeting of 20 August 2015.
4.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Ozak, contravening s 961G of the Act in providing advice to Person B (as referred to in the ASOF) at and following the client meeting of 20 August 2015.
Contravention of s 961L of the Corporations Act
5.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Bilal El-Helou (El-Helou), complied with s 961B(1) of the Act in providing advice to Person C (as referred to in the ASOF) at and following the client meeting of 15 July 2014.
6.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to Person C (as referred to in the ASOF) at and following the client meeting of 15 July 2014.
7.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961B(1) of the Act in providing advice to Person D (as referred to in the ASOF) at and following the client meeting of 20 August 2013.
8.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to Person D (as referred to in the ASOF) at and following the client meeting of 20 August 2013.
9.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961B(1) of the Act in providing advice to Person E (as referred to in the ASOF) at and following the client meeting of 15 July 2013.
10.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to Person E (as referred to in the ASOF) at and following the client meeting of 15 July 2013.
11.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Adrian Chenh (Chenh), complied with s 961B(1) of the Act in providing advice to Person F (as referred to in the ASOF) at and following the client meeting of 24 November 2014.
12.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961G of the Act in providing advice to Person F (as referred to in the ASOF) at and following the client meeting of 24 November 2014.
13.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961B(1) of the Act in providing advice to Person G (as referred to in the ASOF) at and following the client meeting of 15 July 2014.
14.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961G of the Act in providing advice to Person G (as referred to in the ASOF) at and following the client meeting of 15 July 2014.
15.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Bevan Heneric (Heneric), complied with s 961B(1) of the Act in providing advice to Person H (as referred to in the ASOF) at and following the client meeting of 20 August 2013.
16.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Heneric, complied with s 961G of the Act in providing advice to Person H (as referred to in the ASOF) at and following the client meeting of 20 August 2013.
17.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Trinh, complied with s 961B(1) of the Act in providing advice to Person A (as referred to in the ASOF) at and following the client meeting of 19 July 2013.
18.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Trinh, complied with s 961G of the Act in providing advice to Person A (as referred to in the ASOF) at and following the client meeting of 19 July 2013.
19.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Ozak, complied with s 961B(1) of the Act in providing advice to Person B (as referred to in the ASOF) at and following the client meeting of 20 August 2015.
20.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Ozak, complied with s 961G of the Act in providing advice to Person B (as referred to in the ASOF) at and following the client meeting of 20 August 2015.
THE COURT ORDERS BY CONSENT THAT:
1.By 4.00 pm on 5 May 2017, the plaintiff file and serve any evidence on which it intends to rely at the hearing on penalty.
2.By 4.00 pm on 2 June 2017, the defendant file and serve any evidence on which it intends to rely at the hearing on penalty.
3.By 4.00 pm on 16 June 2017, the plaintiff file and serve any submissions and evidence in reply on which it intends to rely at the hearing on penalty.
4.By 4.00 pm on 30 June 2017, the defendant file and serve any submissions on which it intends to rely at the hearing on penalty.
5.By 4.00 pm on 7 July 2017, the plaintiff file and serve any submissions in reply on which it intends to rely at the hearing on penalty.
6.The matter be listed for hearing on penalty on a date to be fixed after 7 July 2017, on an estimate of two days.
7.Costs be reserved.
8.Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MOSHINSKY J:
NSG Services Pty Ltd (NSG) provides financial services advice and holds an Australian Financial Services Licence permitting it to advise retail clients about and deal in life risk insurance and superannuation products. NSG employs and engages persons to provide financial services advice on its behalf as its representatives, and its authorised representatives, within the meaning of the Corporations Act 2001 (Cth) (the Act) (NSG Representatives).
By this proceeding, the Australian Securities and Investments Commission (ASIC) seeks declaratory and other relief against NSG in respect of NSG’s contraventions of certain provisions in Div 2 of Part 7.7A of the Act. This division was introduced as part of the ‘Future of Financial Advice Reforms’ (FOFA reforms) by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth). Compliance with the FOFA reforms was voluntary from 1 July 2012 and compulsory from 1 July 2013.
ASIC alleges that, on several occasions between 1 July 2013 and 20 August 2015 (the relevant period), certain NSG Representatives failed to comply with ss 961B and 961G of the Act in relation to personal advice provided to retail clients of NSG. ASIC also alleges that NSG failed to take reasonable steps to ensure that NSG Representatives complied with ss 961B and 961G of the Act, and NSG thereby contravened s 961L of the Act. ASIC further alleges that, in respect of breaches of ss 961B and 961G by NSG Representatives who were not authorised representatives, NSG breached s 961K of the Act.
Pursuant to s 1317E of the Act, ASIC seeks declarations that NSG has contravened:
(a)section 961K(2) of the Act, in respect of the contraventions by its representatives (other than authorised representatives) of ss 961B and 961G of the Act;
(b)section 961L of the Act, by failing to take reasonable steps to ensure that its representatives (including authorised representatives) complied with ss 961B and 961G of the Act.
Pursuant to s 1317G(1E) of the Act, ASIC seeks orders that NSG pay pecuniary penalties in respect of its contraventions of ss 961K(2) and 961L of the Act. ASIC also seeks its costs of the proceeding.
ASIC and NSG have reached an agreement in relation to the liability part of this proceeding. NSG accepts that it contravened the relevant provisions, and the parties have put forward agreed minutes of proposed declarations (Minutes of Proposed Declarations).
The parties have not reached any joint position with respect to the pecuniary penalties sought by ASIC or ASIC’s costs of the proceeding. These matters will likely need to be resolved by way of a contested hearing at a later stage.
The parties have prepared an agreed statement of facts (ASOF) which provides the factual basis for the proposed declarations. A copy of the ASOF is annexed to these reasons. In the interests of the privacy of the clients of NSG referred to in the ASOF, I have substituted the letters A, B, C etc. for the names of the individuals in the copy of the ASOF annexed to these reasons. I am satisfied that the agreed facts and admissions are sufficient for the Court to determine the appropriate declarations to make in this proceeding, and provide a sound and proper basis for the making of those declarations: see Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46 at [10] per Middleton J and the cases there cited. For the sake of completeness, I note that it was common ground between the parties that, in the table set out in paragraph 19 of the ASOF, the numbers appearing in the second column (headed “Authorised representatives”) and the third column (headed “Financial advisers”) refer to the same individuals.
The parties have provided an outline of joint submissions in support of the proposed declarations. As indicated in that document, certain paragraphs of the ‘joint submissions’ are not, in fact, agreed to by NSG and represent submissions made by ASIC alone. In addition, each of ASIC and NSG has provided some additional submissions of their own. The separate submissions essentially go to issues of the proper construction of the Act, which do not affect the overall position that the parties are agreed that the relevant contraventions occurred and the proposed declarations should be made.
The parties made oral submissions today in support of the proposed declarations. For the reasons that follow, I am prepared to make declarations substantially in the terms of the Minutes of Proposed Declarations.
Orders by Consent and Declarations
The applicable principles as regards the making of orders by agreement and as regards declarations are well established. They were summarised by Gordon J in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [70]–[79] as follows:
2.3.1 Orders sought by agreement
…
70The applicable principles are well established. First, there is a well-recognised public interest in the settlement of cases under the Act: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it: Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].
71Third, when deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Parties cannot by consent confer power to make orders that the Court otherwise lacks the power to make: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163.
72Fourth, once the Court is satisfied that orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement: Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326 at [24]; Real Estate Institute at [20]–[21]; Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union [2007] FCA 1370 at [4].
73Finally, in deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of Coles as an admission of all facts necessary or appropriate to the granting of the relief sought against it: Thomson Australian Holdings at 164.
2.3.2 Declarations
74The Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437–8; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581–2 and Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99.
75Where a declaration is sought with the consent of the parties, the Court’s discretion is not supplanted, but nor will the Court refuse to give effect to terms of settlement by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable: see, for example, Econovite at [11].
76However, before making declarations, three requirements should be satisfied:
(1) The question must be a real and not a hypothetical or theoretical one;
(2) The applicant must have a real interest in raising it; and
(3) There must be a proper contradictor:
Forster v Jododex at 437–8.
77In this proceeding, these requirements are satisfied. The proposed declarations relate to conduct that contravenes the ACL and the matters in issue have been identified and particularised by the parties with precision: Australian Competition & Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at [35]. The proposed declarations contain sufficient indication of how and why the relevant conduct is a contravention of the ACL: BMW Australia Ltd v Australian Competition & Consumer Commission [2004] FCAFC 167 at [35].
78It is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made (see the factors outlined in ACCC v CFMEU at [6]). There is a significant legal controversy in this case which is being resolved. The ACCC, as a public regulator under the ACL, has a genuine interest in seeking the declaratory relief and Coles is a proper contradictor because it has contravened the ACL and is the subject of the declarations. Coles has an interest in opposing the making of them: MSY Technology at [30]. No less importantly, the declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate the ACCC’s claim that Coles contravened the ACL, assist the ACCC to carry out the duties conferred upon it by the Act (including the ACL) in relation to other similar conduct, inform the public of the harm arising from Coles’ contravening conduct and deter other corporations from contravening the ACL.
79Finally, the facts and admissions in Annexure 1 provide a sufficient factual foundation for the making of the declarations: s 191 of the Evidence Act; Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665 at [57]–[59] endorsed by the Full Court in Australian Competition & Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [92]; Hadgkiss v Aldin (No 2) [2007] FCA 2069 at [21]–[22]; Secretary, Department of Health & Ageing v Pagasa Australia Pty Ltd [2008] FCA 1545 at [77]–[79] and Ponzio v B & P Caelli Constructions Pty Ltd (2007) 158 FCR 543.
In this proceeding, by parity of reasoning, the Court is entitled to treat the consent of NSG as an admission of all facts necessary or appropriate to the granting of the relief sought against it. Further, the three requirements for the making of declarations referred to by Gordon J are satisfied. The proposed declarations relate to conduct that contravenes the Act and the matters in issue have been identified and particularised by the parties with precision. The proposed declarations contain sufficient indication of how and why the relevant conduct contravened the Act.
It is in the public interest for ASIC to seek to have the declarations made and for the declarations to be made. There is a significant legal controversy which is being resolved. ASIC, as the public regulator under the Act, has a genuine interest in seeking declaratory relief and NSG is a proper contradictor. Additionally, the declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate ASIC’s claim that NSG contravened the Act, assist ASIC in carrying out its regulatory duties in the future, inform the public of the contravening conduct, and deter other corporations from contravening the Act.
Relevant legislative provisions
In 2012, the Commonwealth Parliament introduced a new Part 7.7A to the Act as part of the FOFA reforms. The FOFA reforms represented the Government’s response to the 2009 Inquiry into Financial Products and Services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services that considered a variety of issues associated with corporate collapses, including of the Storm Financial and Opes Prime Groups: see the revised explanatory memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 (Cth), p 3. The FOFA provisions became law on 1 July 2012. Compliance was voluntary for the first year of operation, and compulsory from 1 July 2013.
By the insertion of Div 2 of Part 7.7A of the Act, the FOFA legislation introduced two key obligations in the provision of financial advice. First, s 961B of the Act imposed a new ‘best interests’ duty on providers in respect of personal financial advice provided to retail clients. Second, s 961G of the Act required providers to provide advice that is appropriate to the retail client. (There is a presumption in the Act that financial advice is provided to a retail client, subject to certain exceptions including where the value of the financial product to which the advice relates is at or over $500,000: see s 761G and the associated regulations, which have the effect of defining “retail client” as a person who has invested in a financial product that is valued at less than $500,000 on the advice of their licensed financial adviser. This threshold matter is satisfied here.)
A “provider” is the individual who provides the advice: ss 961(2) and (3). That is so even where the individual is a representative of a financial services licensee and is to provide the advice on behalf of the licensee: s 961(4).
Section 961B (headed “Provider must act in the best interests of client”) relevantly provides as follows:
(1)The provider must act in the best interests of the client in relation to the advice.
(2)The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:
(a)identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b) identified:
(i)the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii)the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances);
(c)where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;
(d)assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e)if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i)conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii)assessed the information gathered in the investigation;
(f)based all judgements in advising the client on the client’s relevant circumstances;
(g)taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.
Note:The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client’s relevant circumstances). That subject matter and the client’s relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.
The obligation imposed by s 961B(1) will be referred to as the best interests duty in these reasons. The expression “the best interests of the client”, which appears in s 961B(1), is not defined. Section 961B(2) may be treated as providing a ‘safe harbour’ for providers accused of breaching the best interests duty. If the provider can prove that he or she has done each of the seven things in s 961B(2), he or she will have satisfied the best interests duty.
There was, at least, a difference in emphasis between the parties as to the interaction between the primary provision, in s 961B(1), and the ‘safe harbour’ provision, in s 961B(2). However, ultimately, in the course of oral submissions, there did not appear to be any significant difference between the parties. It was accepted by ASIC that (as submitted by NSG) a person may be able to satisfy the best interests duty in s 961B(1) even though they do not fall within the ‘safe harbour’ of s 961B(2). The difference in emphasis was that ASIC contended that, in a “real world” practical sense, s 961B(2) was likely to cover all the ways of showing that a person had complied with s 961B(1) and, in this way, a failure to satisfy one or more of the limbs of s 961B(2) is highly relevant to the Court’s assessment of compliance with the best interests duty.
In summary form, for a provider to obtain the benefit of the ‘safe harbour’ provisions, it must prove that it has done each of the following:
(a)identified the objectives, financial situation and needs of the client, as disclosed to the adviser through the client’s instructions;
(b)identified the reason for the client seeking financial advice, and the client’s relevant circumstances;
(c)made reasonable inquiries to obtain complete and accurate information where it was “reasonably apparent” that information about the client’s relevant circumstances was incomplete or inaccurate (see s 961C, which defines what is “reasonably apparent”);
(d)declined to provide advice in the event that the adviser did not have the relevant expertise;
(e)conducted a “reasonable investigation” into the financial products that might meet the needs and objectives of the client, and assessed the information gathered in the investigation (see s 961D, which describes what is a “reasonable investigation”);
(f)based all judgments in advising the client on the client’s relevant circumstances; and
(g)taken any other steps that would “reasonably be regarded as being in the best interests of the client” given their circumstances. Section 961E amplifies the nature of that inquiry by stating that a matter would reasonably be regarded as in the best interests of the client if a person with a reasonable level of expertise in the subject matter of the advice sought, exercising care and objectively assessing the client’s circumstances, would have regarded the step as such.
The obligation only to provide advice that is appropriate to the client is contained in s 961G, which assumes that, in preparing the advice, the adviser has complied with the best interests duty in s 961B(1) of the Act. Section 961G (headed “Resulting advice must be appropriate to the client”) provides as follows:
The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client.
Note:A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A).
The obligation imposed by s 961G will be referred to as the appropriate advice duty in these reasons.
It was common ground that, while s 961B is concerned with the process or procedure involved in providing advice that is in the best interests of the client, s 961G is concerned with the content or substance of that advice. At first blush, the text of s 961B does not appear to support the proposition that s 961B is concerned with the process or procedure involved in providing advice that is in the best interests of the client. However, support for this way of viewing the focus of s 961B is provided by the context in which it appears, including the language of s 961G, the legislative history, and the legislative materials (see, in particular, the revised explanatory memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 (Cth) at [1.23], [1.24], [1.57]). It is unnecessary for present purposes to reach a concluded view on this issue.
The nature of NSG’s liability, as a financial services licensee, for the conduct of its representatives who contravene the best interests duty and the appropriate advice duty depends on whether or not the representative is an “authorised representative”.
Under the system of licensing regulated by Part 7.6 of the Act, all persons carrying on a business of providing financial services, as defined, must hold an Australian Financial Services Licence. Licence holders can authorise representatives to provide financial services on behalf of the licensee, who are then exempted from the requirement of being licensed themselves: s 911A(2). Directors and employees of a licensed entity are “representatives” of a licensee and do not need to be appointed as authorised representatives: s 911B(1)(a). In this case, El-Helou, Chenh and Heneric were authorised representatives of NSG, and Trinh and Ozak were representatives of NSG (as employees of NSG: see the definition of a “representative” in s 910A).
Sections 961K and 961L of the Act provide for certain consequences for financial services licensees (as opposed to individual advisers) for contraventions by their representatives of, relevantly, ss 961B and 961G.
Section 961K(2) provides as follows:
A financial services licensee contravenes this section if:
(a)a representative, other than an authorised representative, of the licensee contravenes section 961B, 961G, 961H or 961J; and
(b)the licensee is the, or a, responsible licensee in relation to that contravention.
Under this provision, a licensee (such as NSG) will have contravened the Act if a representative, other than an authorised representative, contravenes s 961B or s 961G, and the licensee is the responsible licensee in relation to that contravention. However, there is no equivalent provision to s 961K that attributes liability to a licensee for the contraventions of its authorised representatives.
Section 961L (headed “Licensees must ensure compliance”) provides as follows:
A financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J.
Under this provision, a licensee (such as NSG) has a duty to take reasonable steps to ensure compliance by its representatives.
Pursuant to s 1317E of the Act, both s 961K and s 961L are civil penalty provisions.
There does not appear to have been any detailed judicial consideration of the provisions that are the subject of this proceeding. The relevant provisions were referred to, but not construed, in Australian Securities and Investments Commission v Ostrava Equities Pty Ltd [2016] FCA 1064 at [28] and Panganiban v Australian Securities and Investments Commission (2016) 338 ALR 119 at [21].
The obligation in s 961L mirrors that in s 912A(1)(ca) of the Act, which requires a financial services licensee to “take reasonable steps to ensure that its representatives comply with the financial services laws”. Unlike s 961L, s 912A is not a civil penalty provision. In Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd (2009) 179 FCR 46, Barker J held that the obligation of an AFSL holder to ensure that its representatives are adequately trained, per s 912A(1)(f), read in combination with the obligation in s 912A(1)(ca), and “the general objectives of Ch 7 of the [Act] … the tightening of the law governing the provision of financial services, and the rigorous licensing system [in Chapter 7 of the Act] … strongly suggests the holder of an AFSL should undertake a continuing training program that is calculated to produce competent representatives or maintain their level of competence”: at [342]–[346].
Contraventions of s 961K(2) of the Act
As noted above, liability under s 961K(2) of the Act is automatically imposed on NSG by reason of its representatives, other than authorised representatives, having contravened ss 961B and 961G of the Act.
Because Trinh and Ozak were at all relevant times employees of NSG, and not authorised representatives, NSG is liable for each of their contraventions of ss 961B and 961G of the Act. The facts set out in the ASOF establish the following contraventions of ss 961B and 961G by each of Trinh and Ozak, in respect of which NSG is liable:
(a)Trinh contravened s 961B(1) in providing advice to Person A (as referred to in the ASOF) at and following the client meeting of 19 July 2013;
(b)Trinh contravened s 961G in providing advice to Person A at and following the client meeting on 19 July 2013;
(c)Ozak contravened s 961B(1) in providing advice to Person B (as referred to in the ASOF) at and following the client meeting of 20 August 2015; and
(d)Ozak contravened s 961G in providing advice to Person B at and following the client meeting of 20 August 2015.
In light of the above, I am satisfied that NSG contravened s 961K(2) as set out in the first four proposed declarations, which are as follows:
1.The Defendant (NSG) contravened s 961K(2) of the Corporations Act 2001 (Cth) (the Act) by reason of its representative, other than an authorised representative, Van Trinh (Trinh), contravening s 961B(1) of the Act in providing advice to [Person A] at and following the client meeting of 19 July 2013.
2.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Trinh, contravening s 961G of the Act in providing advice to [Person A] at and following the client meeting of 19 July 2013.
3.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Mustafa Ozak (Ozak), contravening s 961B(1) of the Act in providing advice to [Person B] at and following the client meeting of 20 August 2015.
4.NSG contravened s 961K(2) of the Act by reason of its representative, other than an authorised representative, Ozak, contravening s 961G of the Act in providing advice to [Person B] at and following the client meeting of 20 August 2015.
Accordingly, I will make declarations substantially in the terms of the first four proposed declarations.
Contraventions of s 961L of the Act
There was some difference between the parties, at least in their separate written submissions, as to the requirements necessary to establish a contravention of s 961L. On the one hand, ASIC submitted in its written submissions that NSG’s liability for its contraventions of s 961L arises in this case because of:
(a)contraventions of ss 961B and 961G by certain NSG Representatives;
(b)a failure by NSG to take reasonable steps to prevent these contraventions; and
(c)a causal nexus between the two.
On the other hand, NSG submitted that ASIC had read into s 961L elements that do not exist. NSG submitted that s 961L warrants consideration only of the reasonableness of the conduct (ie, the steps taken by) NSG. It submitted that, for the purposes of s 961L, it is neither necessary nor sufficient to show a contravention of another relevant provision (in this case, s 961B(1) or s 961G).
Ultimately, in oral submissions, ASIC submitted that it was not necessary for the Court to reach a concluded view on this issue (because the underlying contraventions of ss 961B and 961G by the representatives were admitted and there was a causal nexus between NSG’s failure to take reasonable steps and those contraventions). ASIC also submitted that it did not advocate a firm position on the point, but as a matter of practicality some form of causal nexus was likely to exist in most cases.
In my view, it is not necessary to resolve this point in this case. The facts set out in the ASOF establish the underlying contraventions of ss 961B and 961G by the NSG Representatives. They also demonstrate a causal relationship between the failure by NSG to take reasonable steps and the contraventions of ss 961B and 961G by the NSG Representatives.
I will now address the way in which NSG’s failure to take reasonable steps is established by the ASOF.
NSG admits that it failed to take reasonable steps to ensure compliance by its representatives with their best interests duty and their appropriate advice duty by reason of the following practices and policies:
(a)the new client advice process;
(b)training of NSG Representatives;
(c)NSG’s systems for monitoring and supervising representatives;
(d)external audits;
(e)compliance policies; and
(f)sales targets and remuneration.
An examination of each of these practices and policies demonstrates that, at all relevant times, NSG was aware of problems with the form and content of financial product advice provided by its representatives to retail clients. While NSG took some steps to address issues as they arose, NSG failed adequately to address the systemic problems with its practices and policies that enabled representatives to provide advice in contravention of the best interests duty and the appropriate advice duty. NSG obtained detailed advice from a number of external providers, but failed adequately to disseminate and implement that advice across the organisation.
NSG’s relevant practices and policies are addressed below.
New client advice process
The agreed facts concerning NSG’s new client advice process are set out in the ASOF at paragraphs 22-28.
The system at NSG for providing advice to new retail clients was designed to be completed quickly. Although new clients spoke with NSG staff over the telephone before meeting an adviser, the substantial majority of client instructions were provided at the sole meeting between the client and NSG representative. NSG provided its representatives with a detailed ‘Client Fact Finder’ form to assist with obtaining client instructions, but did not regularly check whether the Client Fact Finders were accurate, and NSG Representatives often completed forms after the client meeting in the absence of the client. NSG Representatives provided advice at the client meeting, and sought and obtained instructions to implement the advice at the same meeting.
Clients were given little or no time to reflect on the advice by NSG Representatives before agreeing to implement the recommendations and advice. NSG had no system in place to ensure that clients received and approved the content of a written statement of advice (SOA) prior to the implementation of the financial advice, or at all. In the case of each of the clients identified in the ASOF, NSG Representatives prepared SOAs after the sole client meeting, and after the client had agreed to implement the advice.
The result of this process meant that NSG Representatives were able to give financial product advice:
(a)in the absence of proper, sufficient and complete instructions and information about the client’s objectives, financial situation and needs;
(b)without conducting research into appropriate financial products after the provision of complete instructions by the client;
(c)without comparing the client’s existing superannuation and life and risk insurance products with the client’s stated objectives, and with the products recommended by NSG; and
(d)prior to the preparation of a written SOA or the client receiving, and considering, the matters in a SOA.
Training systems and practices
The agreed facts concerning NSG’s training systems and practices are set out in the ASOF at paragraphs 29-50.
Although NSG provided a considerable amount of training to its representatives, there was a lack of training about advisers’ obligations under the Act. NSG conducted only three training sessions on the implementation of the FOFA reforms within the relevant period, in March 2012, February 2014 and May 2015.
NSG provided trainee advisers with three months of full-time training to become NSG Representatives, and ongoing weekly training to all advisers. In both cases, the training was conducted internally, and was focused on client communication and sales effectiveness. Trainee advisers were not adequately trained by NSG on how to use the information they had gathered in order to provide appropriate financial advice within the meaning of the Act. Trainee and established advisers were not provided with training on the benefits and detriments of financial products offered by NSG, on the preparation of a SOA, or about their individual obligations as a result of the FOFA reforms.
The inadequacy of the training about NSG Representatives’ individual obligations under the Act meant that they were not adequately made aware of their personal responsibility for compliance with the best interests duty, including the safe harbour provisions, the appropriate advice duty, or of the legal consequences of non-compliance.
Systems for monitoring and supervision
The agreed facts concerning NSG’s systems for monitoring and supervision are set out in the ASOF at paragraphs 51-64.
NSG did not conduct regular or substantive performance reviews of its representatives, and did not conduct regular internal audits of the advice provided by representatives, or check that advice was provided in compliance with the obligations in Div 2 of Part 7.7A of the Act. Although NSG had a formal policy concerning the supervision of representatives, it did not exist until 14 February 2014, and was not followed insofar as the policy required NSG to undertake quarterly performance reviews of representatives.
NSG did conduct internal audits of some of its representatives, including El-Helou, during the relevant period. These audits revealed that El-Helou had been failing to obtain complete instructions from clients about their objectives, financial situation and needs; and failing to provide appropriate advice to NSG clients. However, El-Helou was not adequately sanctioned for these matters, and NSG did not interrogate its systems, policies and practices to ascertain if there were deficiencies in those processes that enabled advisers to avoid compliance with their regulatory obligations. NSG’s knowledge of these matters, and its failure to ensure that its systems, policies and practices were not enabling the contravention by NSG Representatives of their obligations under the Act, meant that it contravened s 961L of the Act.
External audits
The agreed facts about the external audits and reviews at NSG are set out in the ASOF at paragraphs 65-92.
NSG engaged third parties to conduct reviews and audits of NSG and its representatives in 2012 (twice), 2013, and 2015. Further, ASIC conducted a review of NSG in 2013. The external reviews and audits examined client files of NSG to ascertain whether financial advice was being provided in compliance with the provisions of the Act, as well as NSG’s own approach to compliance. Although the two reviews conducted by Jigsaw in 2012 were conducted before the FOFA reforms had been implemented, the findings from those reviews were consistent with findings by Ashurst in 2013 and Assured Support in 2015.
Each of the five external reviews identified various unsatisfactory acts and omissions of NSG Representatives in providing advice, and potential breaches of NSG’s and NSG Representatives’ obligations under the Act. The unsatisfactory acts and omissions related to, relevantly, obtaining instructions from clients; the provision of advice; and the preparation of SOAs.
The external reviews identified that NSG Representatives were providing advice on the same day as the client meetings, before a written SOA was provided to the client, and before the representative had conducted an adequate assessment of the client’s existing financial products and his or her financial objectives, situation and needs. NSG received advice from Ashurst in 2013 and 2014 recommending that it inform its representatives of the best interests obligation, and require its advisers to complete a checklist of matters relevant to the performance of that obligation. However, NSG did not distribute the Ashurst advice or incorporate the recommendations into its systems and processes. The advice provided by Ashurst about NSG’s compliance framework was not followed or implemented by NSG.
The matters raised by NSG’s external advisers between 2012 and 2014 consistently referred to NSG Representatives’ failure to give appropriate advice and act in the best interests of the client, in particular by providing hastily prepared, incomplete, and proforma advice to clients. NSG was thus aware of these matters. This knowledge, coupled with NSG’s failure to take adequate responsive steps to ensure that its systems, policies and practices were not contributing to the contraventions by NSG Representatives of their obligations under the Act, meant that NSG contravened s 961L of the Act.
Compliance policies
The agreed facts about NSG’s compliance policies, and its breaches and compliance registers, are set out in the ASOF at paragraphs 93-117.
During the relevant period, NSG did not have any policy which addressed the NSG Representatives’ statutory duties and requirements under Div 2 of Part 7.7A, or any other provisions, of the Act.
While NSG had a number of written policies relating to legal and regulatory compliance and risk management, the policies were inadequate and, in many cases, not followed or enforced by NSG. This failure meant that NSG did not have an adequate system in place to monitor compliance by its representatives with their statutory obligations, and accordingly, was not able to and did not identify systemic problems with its policies and seek to remedy those problems.
The policy at NSG governing the production of SOAs required NSG Representatives to ensure that SOAs were signed by the client prior to the adviser commencing to apply for the financial products selected by the client. NSG was aware, from internal and external audits of client files, that SOAs were prepared after the provision and implementation of advice as a matter of course. In the case of each of the clients identified in these proceedings, SOAs were not provided and were not signed off before the implementation of advice.
The policies at NSG governing communication with clients required NSG Representatives to inform clients in the event that an insurance company offered insurance on revised terms to those originally suggested by the adviser. NSG received a number of complaints regarding the failure by representatives to inform clients of revised terms.
Policies regarding conflicts of interest and compliance (which required NSG to survey clients after appointments with NSG and again after advice was implemented, as well as to review SOAs) were drafted in 2011, and not updated following the commencement of the FOFA reforms until, in the case of the compliance policy, November 2015. NSG did not routinely and in each case survey clients after their appointments with NSG Representatives, or after the implementation of advice.
NSG maintained a register for recording breaches by its representatives of NSG’s and individual representatives’ statutory obligations, but regularly failed to record instances of conduct that may have constituted a breach. This failure meant that NSG was not able to properly monitor the actions of its representatives to ensure that they were acting in compliance with their own, and NSG’s, statutory obligations.
Further, between May and December 2013, ASIC conducted an audit of a number of NSG client files and found the majority (10 out of 11 audited) contained inappropriate advice. NSG notified ASIC that it would lodge breach notifications with ASIC in respect of its defective SOA template, and in respect of defective SOAs provided to at least four clients. It did not do so. Nor did it record those breaches on its breaches register.
NSG maintained a complaints register for recording complaints by clients against NSG Representatives. Both before and during the relevant period, the complaints recorded on the register demonstrated conduct by NSG Representatives that was consistent with the findings of the external auditors and reviewers, referred to above. Further, the complaints register was not a complete record of all those complaints made in respect of NSG Representatives. For example, NSG failed to record those complaints against El-Helou that it identified in the internal review described at [54] above.
NSG was aware of the deficiencies in compliance with its policies, and in certain cases in the policies themselves. NSG was aware of the matters recorded on the breaches and complaints registers, and the deficiencies of those registers. This knowledge, coupled with NSG’s failure to ensure that its systems, policies and practices were not contributing to the contraventions by NSG Representatives of their obligations under the Act, meant that NSG contravened s 961L of the Act.
Remuneration and sales targets
The agreed facts about the remuneration and sales targets for NSG Representatives are set out in the ASOF at paragraphs 118-122.
Prior to the commencement of certain of the FOFA reforms on 1 July 2013, NSG Representatives were remunerated entirely by commission on sales for superannuation rollovers and life risk insurance.
Although NSG introduced a base salary and performance-based bonus remuneration structure after 1 July 2013, some NSG Representatives were still paid only by way of commission.
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.
All NSG Representatives were required to meet weekly sales targets, and attended weekly sales meetings at which each representative’s sales from the previous week were published and the sales performance of each representative was discussed.
Conclusion relating to s 961L
In light of the above, I am satisfied that NSG contravened s 961L as set out in proposed declarations 5 to 20, which are as follows:
5.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Bilal El-Helou (El-Helou), complied with s 961B(1) of the Act in providing advice to [Person C] at and following the client meeting of 15 July 2014.
6.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to [Person C] at and following the client meeting of 15 July 2014.
7.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961B(1) of the Act in providing advice to [Person D] at and following the client meeting of 20 August 2013.
8.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to [Person D] at and following the client meeting of 20 August 2013.
9.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961B(1) of the Act in providing advice to [Person E] at and following the client meeting of 15 July 2013.
10.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, El-Helou, complied with s 961G of the Act in providing advice to [Person E] at and following the client meeting of 15 July 2013.
11.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Adrian Chenh (Chenh), complied with s 961B(1) of the Act in providing advice to [Person F] at and following the client meeting of 24 November 2014.
12.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961G of the Act in providing advice to [Person F] at and following the client meeting of 24 November 2014.
13.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961B(1) of the Act in providing advice to [Person G] at and following the client meeting of 15 July 2014.
14.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Chenh, complied with s 961G of the Act in providing advice to [Person G] at and following the client meeting of 15 July 2014.
15.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Bevan Heneric (Heneric), complied with s 961B(1) of the Act in providing advice to [Person H] at and following the client meeting of 20 August 2013.
16.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Heneric, complied with s 961G of the Act in providing advice to [Person H] at and following the client meeting of 20 August 2013.
17.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Trinh, complied with s 961B(1) of the Act in providing advice to [Person A] at and following the client meeting of 19 July 2013.
18.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Trinh, complied with s 961G of the Act in providing advice to [Person A] at and following the client meeting of 19 July 2013.
19.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Ozak, complied with s 961B(1) of the Act in providing advice to [Person B] at and following the client meeting of 20 August 2015.
20.NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that its representative, Ozak, complied with s 961G of the Act in providing advice to [Person B] at and following the client meeting of 20 August 2015.
Accordingly, I will make declarations substantially in these terms.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky. Associate:
Dated: 30 March 2017
APPENDIX
AGREED STATEMENT OF FACTS
(Footnotes omitted)
Table of contents
Paragraph I Introduction 1 II The Parties 5 III Background to Proceeding 8 IV Factors Relevant to Contravention by NSG of Section 961L of the Act 22 (a) NSG’s New Client Advice Process 22 (b) NSG’s Training Systems and Practices 29 (c) NSG’s Systems for Monitoring and Supervision of NSG Representatives 51 (d) External Reviews and Audits 65 (e) NSG’s Compliance Policies 93 (f) Remuneration and Sales Targets 118 V Admitted Contraventions of the Act 123 (a) Contraventions by Bilal El-Helou relating to NSG client Person D 123 (b) Contraventions by Bilal El-Helou relating to NSG client Person C 159 (c) Contraventions by Bilal El-Helou relating to NSG client Person E 183 (d) Contraventions by Adrian Chenh relating to NSG client Person G 227 (e) Contraventions by Adrian Chenh relating to NSG client Person F 261 (f) Contraventions by Bevan Heneric relating to NSG client Person H 285 (g) Contraventions by Van Trinh relating to NSG client Person A 322 (h) Contraventions by Mustafa Ozak relating to NSG client Person B 350
I INTRODUCTION
1.The Plaintiff, the Australian Securities and Investments Commission (ASIC), and the Defendant, NSG Services Pty Ltd (NSG), agree to the facts set out below in this Agreed Statement of Facts (ASOF) for the purposes of s 191 of the Evidence Act 1995 (Cth).
2.The facts agreed to and the admissions made in this document are for the purpose of this proceeding only and do not constitute any agreed fact or admission external to this proceeding.
3.NSG has agreed to declarations being made against it in relation to all allegations made by ASIC in this proceeding.
4.This ASOF is made in support of the accompanying minutes of orders for proposed declaratory relief.
II THE PARTIES
5. ASIC:
(a)is a body corporate pursuant to s 8 of the Australian Securities and Investments Commission Act 2001 (Cth); and
(b)may apply to the Court for a declaration of contravention and a pecuniary penalty order under the Corporations Act 2001 (Cth) (Act), pursuant to s 1317J(1) of the Act.
6. NSG:
(a) is incorporated pursuant to the Act;
(b) carries on business as a provider of financial services;
(c)holds Australian Financial Services Licence (AFSL) number 321191 permitting it to, among other activities, advise retail clients about and deal in life risk insurance and superannuation products;
(d)from time to time since 1 July 2013 has employed and contracted persons to provide financial product advice, as its authorised representatives within the meaning of the Act and representatives other than authorised representatives, on its behalf (NSG Representatives), including:
(i) Bilal El-Helou (El-Helou);
(ii) Adrian Chenh (Chenh);
(iii) Bevan Heneric (Heneric);
(iv) Van Trinh (Trinh); and
(v) Mustafa Ozak (Ozak).
7. At all material times:
(a)El-Helou, Chenh and Heneric were each an authorised representative of NSG as defined in s 961A of the Act; and
(b)Trinh and Ozak were each a representative of NSG other than an authorised representative.
III BACKGROUND TO THE PROCEEDING
(a) Structure of NSG
8.NSG is a Melbourne-based proprietary limited company that has operated since 1997.
9.At all relevant times, the NSG business has been divided into a number of separate divisions:
(a) Reception, human resources and office management (Division 1);
(b)Client services for existing clients, client reviews and claims handling (Division 2);
(c) Accounts payable and receivable (Division 3);
(d) Product lodgement and administration (Division 4);
(e) Quality control and compliance of advice (Division 5);
(f)New client engagement and advice, verification of advice and pre-production audit (Division 6); and
(g) Executive management (Division 7).
10. Division 6 advisers are responsible for servicing new clients.
11.Division 2 advisers service the existing NSG client base, which includes reviewing, increasing and rewriting existing business. A client will become a Division 2 client after their initial financial plan and products are implemented.
12.As at 1 July 2013 until May 2014, NSG had the following management structure:
(a) Executive Director;
(b) Production Executive Secretary;
(c) Production Manager;
(d) Quality Control Manager; and
(e) Authorised Representative Manager.
13.Between May 2014 and up until at least 20 August 2015 (the end of the relevant period as defined at paragraph 22 below), NSG had the following management structure:
(a) Executive Director;
(b) Operations Manager;
(c) Office Manager/Human Resources;
(d) Client Service Manager;
(e) Production Manager;
(f) Quality Control Officer;
(g) Accounts Manager; and
(h) Course Room Supervisor.
14.The following persons were designated by NSG as Responsible Persons under its AFSL:
(a) from 2 April 2008 to 20 December 2012, Sean Santoro;
(b) from 20 December 2012 to 2 February 2015, Ari Papapavlou; and
(c) from 20 December 2012 to the current date, Brian Sayers.
15.At all material times, Tony Tzouvelis has been and continues to be the sole director and sole secretary of NSG.
16.The role of Operations Manager, held by Chrystal Evans since at least May 2014, encompasses the role of Compliance Manager. This role oversees the daily operations of Divisions 3, 4, 5 and 6.
(b) Client base
17.At all times during the relevant period, NSG had various referral arrangements in place with a number of accounting businesses.
18.NSG’s client base is, and at all times during the relevant period has been, predominantly comprised of investors who receive personal financial advice as retail clients.
(c) Size of NSG
19.Between 30 June 2013 and 30 June 2016, NSG has had the following numbers of authorised representatives and financial advisers:
Financial year ending Authorised representatives Financial advisers 30 June 2013 16 16 30 June 2014 14 14 30 June 2015 6 6 30 June 2016 2 2 20.As at the date of this ASOF, NSG employs or engages two people that are authorised representatives and financial advisers.
21.NSG has filed with ASIC annual AFSL holder profit and loss statements and balance sheets (Form FS70) that set out the net revenue and asset position of the NSG Services Unit Trust and Associated Entity between 30 June 2008 and 30 June 2016 as follows:
Financial year ending Revenue from Commissions Net asset position 30 June 2008 $23,704 $10.00 30 June 2009 $1,465,878 $10.00 30 June 2010 $2,039,934 $10.00 30 June 2011 $3,228,078 ($1,642) 30 June 2012 $4,557,752 ($1,640) 30 June 2013 $6,451,121 $1,013.00 30 June 2014 $8,235,937 $3,069,568 30 June 2015 $7,542,301 $3,071,515 30 June 2016 $4,655,103 $3,073,646
IVFACTORS RELEVANT TO CONTRAVENTION BY NSG OF SECTION 961L OF THE ACT
(a) NSG’s New Client Advice Process
22.In the period between around 1 July 2013 and 20 August 2015 (the relevant period), the usual process and practice at NSG for receiving instructions from and giving advice to new retail clients with respect to life risk insurance and superannuation products (new client advice process) included the matters in the paragraphs that follow.
23.An NSG administrative employee contacted a prospective client by telephone to offer them free financial planning advice and to arrange a meeting with an NSG Representative.
24.During the initial telephone call with the prospective client, an NSG administrative employee and/or an NSG Representative asked the prospective client general information about their personal and financial circumstances in order to “qualify” the prospective client to determine whether it would be worthwhile for them to receive advice in relation to financial products from an NSG Representative.
25.If a prospective client agreed to a meeting during the initial telephone call, then an NSG Representative met with the client in person, usually at the client’s home, on one occasion.
26.Prior to the meeting, no one at NSG collected specific information or conducted specific research with respect to the client’s financial situation, needs or objectives.
27. At the meeting, the NSG Representative:
(a)took and recorded instructions from the client, ordinarily by partially completing a document entitled ‘Client Fact Finder’;
(b)made, or was provided with, copies of the client’s recent superannuation statements and/or insurance documents, if available, as well as, at times, the client’s driver’s licence or other form of identification;
(c)orally gave the client financial advice and recommended one or more life risk insurance and/or superannuation products to the client;
(d)did not discuss alternative life risk insurance and/or superannuation products, provide any comparisons between alternative products, or provide any comparison between the client’s existing products and any recommended product(s);
(e)arranged for the client to sign incomplete forms and documents, including a Client Fact Finder and application forms for the recommended products, and an authority to proceed.
28. Following the meeting:
(a)the NSG Representative at times completed, or caused to be completed, documents including application forms for the recommended products, an authority to proceed, and the Client Fact Finder;
(b)where two witnesses to a client’s signature were required in an application form for the recommended product, the NSG Representative at times arranged for another NSG employee to sign the form as the second witness despite that person not having seen the client;
(c)the NSG Representative obtained quotes and/or product information for the recommended products where it had not been done prior to the meeting;
(d)the NSG Representative submitted the documents referred to in subparagraphs (a) and (c) above to an internal verifications department, known as the Production Department, for review, processing the product applications and arranging for the implementation of the NSG Representative’s advice with respect to the products recommended to the client;
(e)up to around 2014, the NSG Representative prepared a written statement of advice (SOA) for the client;
(f)from about 2014, the NSG Representative submitted the completed Client Fact Finder, notes and quotes to an internal SOA paraplanner at NSG, who then prepared the SOA;
(g)there were no checks at NSG to ensure the client received the SOA prior to the implementation of the recommended products, or at all; and
(h)an NSG Representative contacted the client after the advice was provided and instructions implemented (if applicable) to conduct a client satisfaction survey.
(b) NSG’s Training Systems and Practices
Initial training
29.At all material times, NSG provided trainee advisers, upon the commencement of their engagement by NSG, with three months of full-time training to become an NSG Representative (the initial training).
30.Trainee advisers undertaking the initial training included people who had not previously worked in financial services.
31.The initial training was conducted internally by NSG staff.
32.The initial training comprised several courses, including a Communications Course, a Fact Finder Course and a Tone Scale Course.
33.The Communications Course was aimed at teaching trainee advisers how to communicate with clients.
34.As part of the Communications Course trainee advisors were required to work through ‘Training Routines’, known as ‘TRs’, which involved a lot of time spent doing role plays with other advisers.
35.The Fact Finder Course focused on the process of obtaining instructions from clients using NSG’s Client Fact Finder template document.
36.During the Fact Finder Course, trainee advisers were required to:
(a)learn a script for the fact-finding process, which script was contained in the Fact Finder document; and
(b)watch a DVD of an adviser role-playing an interview with a client using the Fact Finder document.
37.Part of the Fact Finder Course was focused on communicating with clients effectively, including by:
(a)learning to handle client “objections” to giving particular information or talking about particular topics; and
(b)practising using the script for the fact-finding process in the Fact Finder document through role-plays, which were often video-taped and then shown to trainee advisers.
38.During the Fact Finder Course, trainee advisers were not trained by NSG how to use the information they had gathered in order to provide appropriate financial advice within the meaning of the Act, or at all.
39.The Tone Scale Course focused on learning to identify and match clients’ “emotional tones”.
40.As part of the initial training, trainee advisers were required to read a number of books and materials about selling products.
41.The initial training did not include any training on:
(a)the financial products in respect of which NSG provided financial advice; or
(b)preparing and providing clients with a SOA; or
(c)the substance of any legal obligations imposed on NSG Representatives with respect to the provision of advice to clients, including obligations imposed by the Future of Financial Services (FOFA) provisions of the Act.
Internal training of NSG Representatives
42.At all material times, NSG held weekly training sessions for NSG Representatives (the weekly training).
43.The weekly training usually involved advisers reading books, memorising scripts from the Client Fact Finder document and doing role plays with other advisers.
44. The weekly training did not include any training on:
(a)the financial products offered by NSG; or
(b)preparing and providing clients with a SOA; or
(c)the substance of any legal obligations imposed on NSG Representatives with respect to the provision of advice to clients, including obligations imposed by the FOFA provisions of the Act.
45.At all material times, NSG trained and instructed NSG Representatives that it is almost always in the client’s best interests to take out some form of life risk insurance.
External training of NSG Representatives
46.NSG conducted three external sessions directly on the implementation of the FOFA provisions of the Act, being:
(a)a training session provided by a company called Jigsaw Support Services Limited on 16 March 2012;
(b)a training session provided by Mills Oakley Lawyers on 13 February 2014; and
(c)a training session provided by a company called Assured Support Pty Ltd on 20 May 2015,
but did not provide any other external training to trainee advisers or NSG Representatives directly on their FOFA obligations.
Monitoring of training by NSG
47.At all material times, NSG did not routinely monitor whether individual NSG Representatives had attended specific internal or external training sessions offered by NSG.
48.Further, at all material times, NSG did not follow ASIC Regulatory Guide 146 and identify deficiencies in the knowledge or skills of individual NSG Representatives in relation to the regulatory requirements to which they were subject, including their FOFA obligations.
49.At all material times, NSG did not follow ASIC Regulatory Guide 146 and establish annual training plans for each NSG Representative which addressed the following steps:
(a)assessed the NSG Representative’s training needs in relation to training standards;
(b)identified the NSG Representative’s gaps or weaknesses in the preceding year and the areas where training will be focused;
(c)set objectives to be met;
(d)determined the structure of the continuing training program;
(e)assessed whether the NSG Representative had met the objectives of the training program; and
(f)provided feedback sessions with the NSG Representative about their performance.
50.Further, during the relevant period, NSG did not follow ASIC Regulatory Guide 146 and:
(a)keep complete records of each NSG Representative’s training plan; or
(b)keep evidence of all NSG Representatives’ continuing training, such as receipts, enrolment records, attendance lists and daily diary notes.
(c) NSG’s systems for monitoring and supervision of NSG Representatives
51.During the relevant period, NSG did not conduct regular or substantive performance reviews of NSG Representatives.
52.During the relevant period, NSG did not conduct regular internal audits or compliance checks on financial advice provided by NSG Representatives.
Monitoring and supervision policy
53.From around 14 February 2014, NSG had a policy entitled ‘Monitoring and Supervision Policy & Procedures’ (Supervision Policy), which stated that:
(a)the purpose of the policy was to outline NSG’s “monitoring and supervision framework to monitor the activities of its representatives and ensure compliance with the financial services laws”;
(b)NSG is “committed to reviewing its Representatives performance on a quarterly basis”; and
(c)each representative’s compliance with NSG’s obligations under its AFSL would be a criterion against which representatives were assessed.
54.NSG did not review NSG Representatives’ performance on a quarterly basis or any other regular basis.
55.The Supervision Policy was not in place at the time of the effective date of Division 2 of Part 7.7A of the Act on 1 July 2013; it was put in place on or about 14 February 2014.
Internal investigation of advisers
56.In September 2013, NSG conducted an internal audit of El-Helou and five of his client files (the El-Helou audit).
57. The El-Helou audit found that:
(a)all client fact finders were relatively similar in regards to content, with all recording the same or similar responses from clients for risk analysis and the insurance questions;
(b)all fact finders were missing budget information and full information on assets and liabilities;
(c)insufficient data had been collected on the clients’ relevant personal circumstances to support the recommendation of insurance through superannuation;
(d)no information was included about clients’ existing products;
(e)there were no records of conversations found for any client;
(f)in all instances, El Helou had recommended insurance through superannuation but it was unclear whether the advice to the clients was “completely appropriate”, as insufficient information about the client’s personal financial commitment made it impossible to determine whether insurance outside of superannuation may have been appropriate;
(g)El-Helou was not on a training schedule and no CPD points had been recorded for two years; and
(h)El-Helou had recently been the subject of two ethics reports in relation to complaints from clients regarding nondisclosure of medical conditions in applications for income protection insurance, being:
(i)a complaint from Wendy White for whom El-Helou had arranged to purchase income protection insurance in 2011 and subsequently, in 2013, had her claim denied on the basis of non-disclosure of a pre-existing condition; and
(ii)a complaint from Shannon Berriman who stated he was told by El-Helou not to disclose his diabetes as a pre-existing condition on his application form for income protection insurance,
(Ethics Reports).
58.In respect of the incident referred to at paragraph 57(h)(ii) above, NSG received an internal report from the NSG Production Manager, Robert Fowler, dated 9 May 2013 about the incident which stated “I do verify pretty much all of the insurances each week and I am quite alarmed by the high rate of standard client’s [sic] Bill has. This incident has raised questions to me and I am now starting to doubt the validity of his other sales.”
59.Following the El-Helou audit NSG:
(a)required El-Helou to re-read sections of ASIC’s Regulatory Guide 146;
(b)required El-Helou to re-do sections of the internal NSG fact-finder course; and
(c)did not require El-Helou to undergo any further external training.
60. Further, following the El-Helou audit NSG:
(a)did not investigate how the client files that were the subject of the El-Helou audit had passed through the Verifications and Quality Control processes of NSG; and
(a)did not conduct an internal audit of any other NSG Representative to ascertain if similar conduct had been or was being engaged in by other NSG Representatives.
Other matters
61.In around January 2015, NSG introduced a new client survey which required NSG staff to telephone clients and, among other matters, check that the completed Client Fact Finder accurately reflected the client’s personal financial circumstances as disclosed to the NSG Representative who acted as their adviser (NSG quality control survey).
62.El-Helou and Chenh informed Chrystal Evans that they did not wish their clients to participate in the NSG quality control survey.
63.For a period of time, NSG permitted El-Helou and Chenh to conduct the NSG quality control surveys of their own clients on the conditions that the calls be recorded, the surveys be reviewed by NSG staff and all surveys be conducted within 48 hours of the client’s application being lodged.
64.After a short trial period El-Helou and Chenh agreed to NSG staff conducting the NSG quality control survey of their clients.
(d) External Reviews and Audits
First Jigsaw Review – February 2012
65.In February 2012, Jigsaw Support Services undertook an external review of five advisers, Brian Sayers, Damian Espinosa, Thomas Maloney, Bilal El-Helou and Sean Santoro, by reviewing three of each adviser’s client files (the Jigsaw Review).
66.The Jigsaw Review identified the following issues with the client files of each adviser reviewed:
(a)client questionnaires were incomplete;
(b)the files did not contain evidence of an investigation into a range of strategies and products;
(c)the files did not contain evidence that a comparison of existing products or insurance had been completed;
(d)there was no evidence that an insurance needs analysis, and/or an analysis of the level or type of cover recommended, had been completed for the client;
(e)where limited advice was provided, there were inadequate file notes confirming the client’s understanding about the limited nature of the advice to be provided; and
(f)there were no or inadequate file notes from discussions and meetings with the client that would support the advice.
67.The Jigsaw Review identified the following issues with the SOAs prepared by each adviser reviewed:
(a)the SOAs did not detail the clients’ goals and objectives;
(b)the SOAs did not contain a discussion of a range of strategies and products;
(c)the SOAs did not contain a comparison of existing products and the recommended replacement product;
(d)the reasons for the strategy and product recommendations were not clear, and SOAs did not show how the recommended strategy would assist the client to meet his or her goals and objectives;
(e)the level of insurance coverage taken out by the adviser on behalf of the client was significantly different to the level recommended by the adviser, without explanation;
(f)the information in the client questionnaire and the SOA was inconsistent and there was no explanation for the inconsistency; and
284.NSG admits that, by reason of the matters set out in paragraphs 22-122 and 282-283 above, NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that Chenh complied with ss 961B(1) and 961G of the Act in providing advice to Person F.
(f)Contraventions relating to advice by Heneric to NSG client Person H
Relevant conduct by Heneric with respect to Person H
Person H meeting
285.On 20 August 2013, Heneric, as an NSG Representative, attended the home of Person H for a meeting to provide Person H with personal financial advice as a retail client (Person H meeting).
286.At the Person H meeting, Person H told Heneric that:
(a)she had approximately $113,594 in superannuation held with the Health Industry Plan Superannuation Fund (HIP Super Fund);
(b)she had accumulated pension funds of approximately £5,000 held in the United Kingdom (UK pension funds);
(c)she was concerned that she did not have enough superannuation to retire on and she was concerned to preserve her existing superannuation;
(d)she had life and disability insurance within the HIP Super Fund which provided a total benefit amount of $23,160 at a monthly premium cost of $33.83 per month;
(e)her annual salary was approximately $140,000 and her monthly income after tax was approximately $6,800; and
(f)she had approximately $47,000 in savings, held approximately $400,000–$500,000 in equity in her home and had a mortgage of $500,000, and her monthly mortgage repayments were approximately $3,400.
287. At the Person H meeting, Person H told Heneric that:
(a)her financial objective was to roll her existing Australian superannuation into a fund that would accept her pension from the United Kingdom; and
(b)she did not want to take out life insurance or income protection insurance, as insurance was not a financial priority for her, and in the event of her death there was sufficient equity in her home so that her adult children could sell her home to pay her debts.
288. At the Person H meeting, Heneric orally advised Person H:
(a)to roll all of her existing superannuation held with the HIP Super Fund into a fund operated by IOOF (Person H superannuation advice); and
(b)to take out life and disability insurance (Person H insurance advice).
289. In respect of the Person H superannuation advice, Heneric:
(a)orally advised Person H that IOOF was a suitable fund that would accept her UK pension funds;
(b)did not provide Person H with any information or documents comparing her HIP superannuation fund with the recommended IOOF fund;
(c)did not suggest any alternative superannuation funds other than the IOOF fund; and
(d)did not provide any information about the fees and costs of the recommended IOOF fund.
290. In respect of the Person H insurance advice, Heneric:
(a)orally advised Person H that in order for her to rollover her UK pension fund into an Australian superannuation fund, IOOF required her to take out an insurance policy;
(b)did not identify or recommend a particular insurance provider;
(c)did not discuss with Person H, or provide any oral advice to her, about the appropriate level of insurance cover; and
(d)did not provide any information about the fees and costs of any policy.
291.At the Person H meeting, Heneric did not provide Person H with any information about the commission and fees payable to Heneric or NSG in relation to his advice and recommendations.
292.After hearing Heneric’s advice and recommendations during the Person H meeting, Person H:
(a)agreed to follow Heneric’s recommendations with respect to superannuation and insurance;
(b)instructed Heneric to take out a life and disability insurance policy that would meet the requirements of IOOF and had the lowest premiums available; and
(c)at Heneric’s request, signed a number of incomplete forms and documents, which were then retained by Heneric, being:
(i)an incomplete document entitled Client Fact Finder bearing the date 20 August 2013 (Person H Fact Finder);
(ii)an incomplete document entitled Personal Statement – Insurance Through Superannuation dated 20 August 2013; and
(iii)an incomplete document entitled TAL Accelerated Protection Application Summary (TAL Application).
After the Person H meeting
293.Following the Person H meeting, Heneric completed or caused to be completed the forms referred to at paragraph 292(c) above.
294.Following the Person H meeting, Heneric prepared or caused to be prepared at NSG a document entitled Statement of Advice bearing the date 20 August 2013 (Person H SOA), which was the same date as the Person H meeting, and the incomplete forms signed by Person H and set out at paragraph 292(c) above.
295.Following the Person H meeting, Heneric submitted or caused to be submitted on behalf of Person H application forms and documents, including the TAL Application, in order to implement the Person H superannuation advice and the Person H insurance advice.
296.On about 27 August 2013, a superannuation account in Person H’s name was opened with IOOF.
297.On about 30 August 2013, TAL wrote to Heneric at NSG stating that Person H’s premium for life and TPD insurance had increased from $399.60 per month to $523.72 per month because of her pre-existing osteoporosis.
298.On about 6 September 2013, a policy in Person H’s name was taken out with TAL for life and disability insurance of $200,000 at a cost of $6,284.64 per year.
299.On about 12 September 2013, Person H’s superannuation held with the HIP Super Fund was rolled into her new IOOF fund.
300.Person H did not receive a copy of the Person H SOA, or any other written statement of advice from Heneric or NSG either prior to agreeing to implement the Person H superannuation advice and the Person H insurance advice, or at all.
301.Person H was not advised by Heneric that her insurance premiums had increased by from $399.60 per month to $523.72 per month because of her pre-existing osteoporosis.
The telephone conversation
302.About 7 months after the Person H meeting, in about March 2014, Heneric contacted Person H by telephone (the telephone conversation) and had a conversation in which he advised that IOOF would not accept her UK pension fund, and recommended that she roll over her superannuation to Macquarie (revised Person H advice).
303.Heneric did not otherwise seek or obtain updated information or instructions from Person H about her objectives, financial situation, or needs.
304.In respect of the revised Person H advice, Heneric:
(a)did not provide Person H with any information or documents comparing her existing IOOF superannuation fund with the recommended Macquarie fund;
(b)did not suggest any alternative funds other than the Macquarie fund; and
(c)did not provide any information about the fees and costs of the recommended Macquarie fund.
305.Heneric did not provide Person H with any information about the commission and fees payable to Heneric or NSG in relation to the revised Person H advice and recommendations, during the telephone conversation or afterwards.
306.After hearing Heneric’s advice and recommendations given in the telephone conversation, Person H agreed to follow Heneric’s recommendations.
307.Shortly after the telephone conversation, Heneric posted a number of forms and documents to Person H, and then telephoned her and instructed that the paperwork needed to be completed urgently, and said that she should sign the forms and he would collect them in person from her home.
308.Person H signed a number of incomplete forms and documents, which were collected and retained by Heneric, including a document entitled ‘Personal Statement – Insurance Through Superannuation’ dated 1 April 2014 (2014 Personal Statement).
After the telephone conversation
309.Following the telephone conversation, Heneric prepared or caused to be prepared at NSG a document entitled ‘Statement of Advice’ for Person H bearing the date 1 April 2014 (Revised Person H SOA), which was the same date as the date on which Heneric collected a number of forms from Person H’s home as set out in paragraph 308 above, and the 2014 Personal Statement signed by Person H.
310.On about 22 April 2014, a superannuation account in Person H’s name was opened with Macquarie.
311.On about 23 April 2014, a policy in Person H’s name was taken out with Macquarie for life and disability insurance of $200,000 and $160,000 respectively at an annual premium cost of $4,442.54.
312.On about 2 May 2014, Person H’s IOOF superannuation of $116,587.63 was rolled into the Macquarie fund.
313.On about 5 June 2014, Person H’s UK pension funds of $11,036.85 were rolled into the Macquarie fund.
314.Person H did not receive a copy of the Revised Person H SOA, or any other written statement of advice from Heneric or NSG prior to agreeing to implement the revised Person H superannuation advice, or prior to Heneric taking out insurance with Macquarie on her behalf.
Consequences of advice
315. In the period between 27 August 2013 and 29 April 2014, Person H:
(a)received employer contributions of $5,536.10 to her IOOF superannuation fund;
(b)paid adviser fees of $5,252.27 from her IOOF superannuation fund, which included a $4,657.39 upfront member advice fee and ongoing member advice fees of $357.62; and
(c)paid a total of $3,666.04 in insurance premiums from her IOOF superannuation fund.
316. In the period between 22 April 2014 and 23 April 2015, Person H:
(a)received employer contributions of $5,560.64 to her Macquarie superannuation fund;
(b)paid adviser fees of $690.15 from her Macquarie superannuation fund; and
(c)paid a total of $3,915.50 in insurance premiums from her Macquarie superannuation fund.
Admissions of contraventions
Contraventions of ss 961B(1) and 961G by Heneric
317.By reason of the matters set out in paragraphs 285 to 316 above, Heneric did not act in the best interests of Person H in relation to his advice to Person H and has thereby breached s 961B(1) of the Act.
318.Further, NSG admits that the advice Heneric provided to Person H was not appropriate to Person H, in breach of s 961G of the Act, by reason of the following matters:
(a)Person H’s UK pension funds were not capable of being rolled over to IOOF to achieve Person H’s objective of consolidating her Australian and UK superannuation funds;
(b)Person H did not wish to take out life and disability insurance; and
(c)by paying the insurance premiums out of her IOOF and then Macquarie funds, Person H’s superannuation was being depleted in circumstances where she was concerned she did not have adequate or sufficient superannuation and wanted to preserve the balance.
Contraventions of s 961L
319.In providing the Person H superannuation advice, the Person H insurance advice, and the revised Person H advice, Heneric followed the new client advice process set out in paragraphs 22 to 28 above.
320.Further, at all material times during his engagement as an NSG Representative, Heneric:
(a)was subject to NSG’s training systems and practices as set out in paragraphs 29 to 50 above; and
(b)was remunerated entirely by commission, after being paid an initial retainer of $30,000 in his capacity as a trainee.
321.NSG admits that, by reason of the matters set out in paragraphs 22-122 and 319-320 above, NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that Heneric complied with ss 961B(1) and 961G of the Act in providing advice to Person H.
(g) Contraventions relating to advice by Trinh to NSG client Person A
Relevant conduct by Trinh with respect to Person A
Person A Meeting
322. On 19 July 2013, Trinh, as an NSG Representative, attended the home of Person A for a meeting to provide Person A with personal financial advice as a retail client (the Person A meeting).
323. At the Person A meeting, Person A told Trinh that:
(a)she had an annual gross income of approximately $66,000;
(b)she held superannuation of at least $52,078 across a number of different superannuation funds which included Mercer, OnePath and other funds the names and details of which she could not recall;
(c)she and her husband, [omitted], owned their home, which had a value of approximately $800,000 and which was subject to a mortgage of approximately $300,0000; and
(d)she and [omitted] owned an investment property in Victoria which had a value of approximately $420,000 that was also subject to a mortgage, the amount of which Person A did not recall at the time.
324. At the time of the Person A meeting, Person A, unbeknownst to her had:
(a)an AMP Retirement Savings superannuation fund, which included life insurance of $1,972.08;
(b)an AMP Super Directions superannuation fund, which included life insurance and disability insurance of $1,296.26;
(c)life insurance and disability insurance of $143,031.95 included in her Mercer superannuation fund at a cost of $300 per year; and
(d)life insurance and disability insurance of $23,198.19 included in her OnePath superannuation fund.
325. At the Person A meeting, Person A provided Trinh with:
(a)a Mercer superannuation statement dated 30 June 2012 (the Person A Mercer Statement), which showed that she had the insurance referred to at paragraph 324(c) above; and
(b)a OnePath superannuation statement dated 1 August 2012 (the Person A OnePath Statement), which showed that she had the insurance referred to at paragraph 324(d).
326. At the Person A meeting, Trinh orally advised Person A to:
(a)roll over all of her existing superannuation into a fund operated by Macquarie (Person A superannuation advice); and
(b)take out life and disability insurance in the sum of $300,000 with Macquarie (Person A insurance advice).
327. In respect of the Person A superannuation advice, Trinh:
(a)orally advised Person A that her superannuation was not working for her;
(b)orally advised Person A that he recommended a rollover of Person A’s superannuation funds to Macquarie because it was a fund that had the best returns;
(c)orally informed Person A that he could perform a lost super search with respect to other superannuation funds held by Person A and consolidate her superannuation into one fund;
(d)did not provide Person A with any information or documents comparing her existing superannuation funds with the recommended Macquarie fund;
(e)did not discuss whether there may be a possibility of trying to get a better return using Person A’s existing superannuation funds;
(f)did not suggest any alternative superannuation funds other than the Macquarie fund; and
(g)did not provide any information about the fees and costs of the recommended Macquarie fund.
328. In respect of the Person A insurance advice, Trinh:
(a)orally advised Person A that any insurance premiums would be paid out of Person A’s superannuation;
(b)did not advise Person A that she already held life insurance and disability insurance through her existing OnePath and Mercer superannuation funds;
(c)did not discuss the option of taking out additional insurance with Person A’s existing superannuation funds;
(d)did not discuss the option of paying for insurance directly rather than having premiums deducted from Person A’s superannuation;
(e)did not explain how he calculated the recommended insurance cover of $300,000;
(f)did not suggest any alternative insurance providers;
(g)did not explain that the premiums payable in respect of insurance would deplete Person A’s superannuation;
(h)did not compare Person A’s existing insurance with the recommended insurance with Macquarie;
(i)did not otherwise explain his reason for advising Person A to take out insurance with Macquarie; and
(j)did not provide any information about the fees and costs of the recommended Macquarie insurance.
329.At the Person A meeting, Trinh did not provide Person A with any information about the commission and fees payable to Trinh or NSG in relation to his advice and recommendations.
330.After hearing Trinh’s advice and recommendations, during the Person A meeting, Person A:
(a)agreed to follow Trinh’s recommendations to roll over her superannuation to Macquarie and to take out insurance through the Macquarie super fund; and
(b)at Trinh’s request, signed a number of incomplete forms and documents, which were then retained by Trinh, being:
(i)an authority to proceed bearing the date 19 July 2013;
(ii)an incomplete document entitled Client Fact Finder bearing the dates 18 June 2013 and 19 July 2013 (Person A Fact Finder);
(iii)an incomplete document entitled ‘Personal statement – Insurance through Superannuation’ bearing the date 19 July 2013;
(iv)an incomplete ‘Australian Taxation Office – Standard Choice Form’ bearing the date 19 July 2013;
(v)two incomplete ‘Australian Government – Request to transfer whole of balance of superannuation benefits between funds’ forms bearing the date 19 July 2013;
(vi)two incomplete NSG forms entitled ‘Authority to disclose and/or receive information’ bearing the date 19 July 2013;
(vii)an incomplete Macquarie Super Accumulator Application Form bearing the date 19 July 2013; and
(viii)an incomplete Macquarie Life – New Business Application bearing the date 19 July 2013.
After the Person A meeting
331. Following the Person A meeting, Trinh:
(a)completed or caused to be completed the documents listed in paragraphs 330(b)(ii)-(viii);
(b)arranged for another NSG Representative, Adrian Chenh, to sign the Macquarie Super Accumulator Application Form bearing the date 19 July 2013 purportedly as a witness of Person A’s signature; and
(c)copied or arranged to have copied Person A’s signature on another part of the Macquarie Life – New Business Application form bearing the dated 19 July 2013, which had already been signed by Person A.
332.Following the Person A meeting, on or about 19 July 2013, Trinh obtained or caused to be obtained a quote from Macquarie for life insurance.
333.Following the Person A meeting, Trinh prepared or caused to be prepared an NSG document entitled “Statement of Advice” for Person A bearing the date 19 July 2013 (Person A SOA), which was the same date as the Person A meeting and the incomplete forms signed by Person A and listed at paragraph 330(b)(ii)-(viii) above.
334.Following the Person A meeting, Trinh submitted or caused to be submitted on behalf of Person A the product application forms referred to at paragraphs 330(b)(ii)-(viii) above in order to implement the Person A superannuation advice and the Person A insurance advice, save that, despite the fact that Trinh orally informed Person A at the Person A meeting that he would identify and consolidate all her superannuation funds, Trinh did not include Person A’s AMP funds in the rollover to Macquarie.
335.On or around 5 August 2013, the insurance lodgement for Person A was rejected by NSG’s Verifications Department on the grounds that the Personal Statement needed to be corrected. The lodgement was later accepted after the issue was resolved.
336.On about 12 August 2013, a policy in Person A’s name was taken out with Macquarie for life insurance and disability insurance in the amount of $300,000 at a premium of $123.72 per month plus a monthly fee of $7.64.
337.Further, on about 26 August 2013, a superannuation account in Person A’s name was opened with Macquarie and Person A’s superannuation funds held with OnePath in the amount of $26,957.18 and superannuation funds held with Mercer in the amount of $40,189.51 were rolled over to Macquarie.
338.Person A did not receive a copy of the Person A SOA, or any other written statement of advice, from Trinh or NSG, prior to agreeing to implement the Person A superannuation advice and the Person A insurance advice, or at all.
339.At no time was Person A’s superannuation held with her two AMP funds rolled into the Macquarie fund.
340.Person A was not advised by Trinh that she held superannuation with two AMP funds, either prior to agreeing to implement the Person A superannuation advice, or at all.
341.Person A was not advised by Trinh that she already held life insurance and disability insurance through her existing superannuation funds, either prior to agreeing to implement the Person A insurance advice, or at all.
Consequences of advice by NSG
342.As a result of Trinh’s advice, on around 3 September 2012, Person A paid an “adviser fee” of $2,348 to NSG out of her Macquarie fund, as well as several monthly adviser fees of $30.
343.Further, as a result of Trinh’s advice, in the period between around August 2013 and around August 2015, Person A paid $3,093 in insurance premiums out of her Macquarie fund.
Admissions of contraventions
Contraventions of ss 961B and 961G by Trinh
344.By reason of the matters set out at paragraphs 322 to 343, NSG admits Trinh did not act in the best interests of Person A in relation to his advice to Person A and has thereby breached s 961B(1) of the Act.
345.Further, NSG admits the advice Trinh provided to Person A was not appropriate to Person A, in breach of s 961G of the Act, by reason of the following matters:
(a)prior to the implementation of Trinh’s advice, Person A had:
(i)life insurance and disability insurance of $23,198.19 within her existing OnePath superannuation;
(ii)life insurance and disability insurance of $143,031.95 at a cost of $300 per year within her existing Mercer superannuation;
(b)the insurance taken out with Macquarie was life and disability insurance of $300,000 at a cost of $1,484.64 per year;
(c)by paying the insurance premiums out of her superannuation, Person A’s superannuation was being depleted; and
(d)Trinh did not identify and roll over Person A’s superannuation held with two AMP funds.
Contraventions of s 961K(2) by NSG
346.NSG admits that NSG contravened s 961K(2) of the Act by reason that Trinh, acting as its representative other than an authorised representative, contravened s 961B(1) and s 961G of the Act in providing advice to Person A.
Contraventions of s 961L by NSG
347.In providing advice to Person A, Trinh followed the new client advice process set out in paragraphs 22 to 28 above.
348.Further, Trinh:
(a)at all material times during his engagement as an NSG Representative was subject to NSG’s training systems and practices as set out in paragraphs 29 to 50 above; and
(b)provided advice to Person A while still being a trainee adviser and not yet an authorised representative of NSG within the meaning of the Act.
349.NSG admits that, by reason of the matters set out in paragraphs 22-122 and 347-348 above, NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that Trinh complied with ss 961B(1) and 961G of the Act in providing advice to Person A.
(h) Contraventions relating to advice by Ozak to NSG client Person B
Relevant conduct by Ozak with respect to Person B
Person B Meeting
350.On 20 August 2015, Ozak, as an NSG Representative, attended the home of Person B for a meeting to provide Person B with personal financial advice as a retail client (the Person B meeting).
351.At the Person B meeting, Person B told Ozak that:
(a) he was on a salary of approximately $47,000 per year before tax;
(b) he had a car loan of $15,000;
(c) he was living in the home owned by his mother;
(d) he was financially supporting his mother; and
(e) he did not have any savings.
352.At the time of the Person B meeting, Person B, to his knowledge, already had life insurance and disability insurance through his Australian Super superannuation fund.
353.At the Person B meeting, Person B provided Ozak with a copy of his Australian Super superannuation statement as at 30 June 2015, which referred to Person B having life insurance and disability insurance of $55,000 at a cost of $100 per year.
354.At the Person B meeting, Ozak orally advised Person B to take out income protection insurance (Person B insurance advice).
355.In respect of the Person B insurance advice, Ozak:
(a)orally advised Person B that the income protection insurance would be paid out of Person B’s superannuation, that it would only cost $100 per year and that Person B would not notice the cost;
(b)did not discuss any particular income protection insurance providers;
(c)did not discuss whether there was an option of taking out income protection insurance with Person B’s existing Australian Super superannuation fund;
(d)did not discuss with Person B, or provide any oral advice to Person B, about the appropriate level of insurance cover;
(e)did not provide any information about the fees and costs of the recommended income protection insurance;
(f)did not provide any comparisons between products offered by different insurance providers; and
(g)did not give Person B copies of any quotes from insurance providers.
356.At the Person B meeting, Ozak told Person B that he was not paid a commission for his services and that “his boss pays him”, but did not otherwise provide Person B with any information about the commission and fees payable to Ozak, or NSG in relation to his advice and recommendations.
357.After hearing Ozak’s advice and recommendations, during the Person B meeting, Person B:
(a)agreed to follow Ozak’s recommendation to take out income protection insurance; and
(b)at Ozak’s request, signed a number of incomplete forms and documents, which were then retained by Ozak, being:
(i)an incomplete document entitled Client Fact Finder bearing the date 20 August 2015 (Person B Fact Finder);
(ii)an incomplete document entitled ‘Personal statement – Insurance through Superannuation’ bearing the date 20 August 2015;
(iii)an incomplete TAL ‘Accelerated Protection Application Form’ bearing the dated 20 August 2015; and
(iv)an incomplete NSG document entitled ‘Authority to Disclose and/or Receive Information’ bearing the date 20 August 2015.
After the Person B meeting
358.Following the Person B meeting, Ozak, completed or caused to be completed the documents set out at paragraphs 357(b)(i)-(iv).
359.Following the Person B meeting, on or about 24 August 2014, Ozak obtained or caused to be obtained quotes for life insurance, disability insurance and income protection insurance from Macquarie and AIA.
360.Following the Person B meeting, Ozak submitted or caused to be submitted on behalf of Person B the TAL ‘Accelerated Protection Application Form’ bearing the date 20 August 2015 in order to take out life insurance and disability insurance in Person B’s name through TAL, despite the fact that Person B already had life insurance and disability insurance through his Australian Super superannuation fund.
361.On about 4 September 2015, unbeknownst to Person B, a sum of $3,863 was transferred from Person B’s Australian Super superannuation fund to TAL.
362.On about 8 September 2015, a policy in Person B’s name was taken out with TAL for life insurance and disability insurance in the amount of $300,000, at a cost of $3,863 per year, but the policy did not include income protection insurance.
363.Person B did not receive any written statement of advice from Ozak or NSG, either prior to agreeing to implement the Person B insurance advice, or at all.
364.Person B was not advised by Ozak, prior to Ozak taking out life insurance and disability insurance with TAL in Person B’s name, that he proposed to take out that insurance for Person B.
Consequences of advice
365.Later in around September 2015, following a request by Person B, TAL cancelled all insurance policies taken out in his name by NSG.
366.Further, in around December 2015, following a request by Person B, TAL repaid the sum of $3,863 to Person B.
367.During the period when Person B was covered by insurance policies taken out in his name with TAL, Person B had life insurance and disability insurance through each of Australian Super and TAL, but did not have any income protection insurance.
Admissions of contraventions
Contraventions of ss 961B(1) and 961G by Ozak
368.By reason of the matters set out at paragraphs 350 to 367, Ozak did not act in the best interests of Person B in relation to his advice to Person B and has thereby breached s 961B(1) of the Act.
369.Further, NSG admits that the insurance advice Ozak implemented for Person B was not appropriate to Person B, in breach of s 961G of the Act, by reason that:
(a)Person B did not wish to take out additional life insurance or disability insurance and only wanted income protection insurance but Ozak nevertheless arranged for a new life and disability insurance policy to be taken out in Person B’s name with TAL; and
(b)Person B wished to take out income protection insurance but Ozak did not arrange for an income protection insurance policy to be taken out in Person B’s name.
Contraventions of s 961K(2) by NSG
370.NSG admits that NSG contravened s 961K(2) of the Act by reason that Ozak, acting as its representative other than an authorised representative, contravened ss 961B(1) and 961G of the Act in providing advice to Person B.
Contraventions of s 961L by NSG
371.In providing advice to Person B, Ozak followed the new client advice process set out in paragraphs 22 to 28 above.
372.Further, at all material times during his engagement as an NSG Representative, Ozak was subject to NSG’s training systems and practices as set out in paragraphs 29 to 50 above.
373.NSG admits that, by reason of the matters set out in paragraphs 22-122 and 350-371 above, NSG contravened s 961L of the Act by failing to take reasonable steps to ensure that Ozak complied with ss 961B(1) and 961G of the Act in providing advice to Person B.
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