When is financial product advice ‘personal’ and not ‘general’ under the Corporations Act 2001 (Cth)?

In Westpac Securities Administration Ltd v Australian Securities Investments Commission,[1] the High Court of Australia considered whether the financial product advice given by Westpac to its existing members was ‘personal advice’ within the meaning of section 766B(3)(b) of the Corporations Act 2001 (Cth) (the Act). Specifically, was the advice given or directed to members in circumstances where a reasonable person might expect that Westpac had considered one or more of the member’s objectives, financial situation and needs?

Background

Westpac Securities Administration and BT Funds Management Ltd (collectively, Westpac) conducted a campaign to encourage existing members to roll over their external superannuation accounts into their pre-existing Westpac superannuation accounts.

Members were sent written correspondence about the campaign before receiving at least one personal phone call from an advisor in Westpac’s Super Activation Team.

The nature of the ‘courtesy’ calls was as follows:

• it began with a disclaimer that everything discussed during the call was ‘general in nature’ and would not take into account the member’s ‘personal financial needs’;
• advice was offered free of charge;
• the members were questioned on what they saw to be the main reasons/benefits of consolidating their superannuation accounts;
• ‘social proofing’ language was used by the adviser to tell the members that their objectives, beliefs or reasons were commonly held;
• the members received a ‘recommendation’ that they should roll their external superannuation accounts into their Westpac account; and
• the recommendation was supported by ‘statements of opinion’ to the effect that, amongst other things, the roll over would save on fees, improve the manageability of the member’s superannuation and would improve the performance of the member’s superannuation.

There was no dispute that Westpac provided ‘financial product advice’; the recommendations and statements of opinion made were intended to influence members to accept the superannuation roll over service being offered (superannuation membership being the financial product).[2]

However, there are two types of financial product advice: personal advice and general advice. The term ‘personal advice’ is defined at section 766B(3) of the Act to mean financial product advice that is given in circumstances where:

‘(a) the provider of the advice has considered one or more of the person’s objectives, financial situation and needs …; or

(b) a reasonable person might expect the provider to have considered one or more of those matters. (emphasis added)’

While Westpac was authorised to provide some ‘financial product advice’ under its Australian Financial Services Licence, it was not permitted to provide ‘personal advice’.

Construction of section 766B(3)(b)

‘Reasonable person might expect’

The Court held that ‘might expect‘ had a wider meaning than in matters where a reasonable person ‘would expect‘. The standard is “one of reasonable possibility, not reasonable probability”.[3]

‘Considered’

Westpac argued that ‘considered’ within the context of section 766B(3)(b) required the advisor to actually take into account the member’s objectives, financial situation and needs, and that it referred to active evaluation. The Court rejected this. Rather, it held that ‘considered’ should be understood as meaning ‘took account of’[4], or have regard to, or be given attention to. Westpac’s interpretation was deemed to gloss over the language of the section in a manner that would narrow the scope of the provision and impose ‘a layer of uncertainty’[5] upon its operation.

‘One or more’

Section 766B(3)(b) contemplates the consideration of at least one aspect of the member’s objectives, financial situation or needs.[6] A fact specific inquiry is necessary to determine whether an advisor has considered one or more of the matters. There is nothing within the section to suggest that personal advice must be comprehensive of the totality of the person’s objectives, financial situation and needs.

‘Objectives, financial situation and needs’

With reference to the primary judge’s decision, the Court stated that “an objective is an end towards which efforts are directed, a situation is a state of affairs or combination of circumstances and a need is a case or instance in which some necessity or want exists”.[7] These terms must be personal, which follows from the language of section 766B(3) and the implicit obligations that stem from giving personal advice.

Did Westpac provide personal advice within the meaning of section 766B(3)(b)?

The short answer is yes.

The Court held that what a reasonable person in the shoes of the member ‘might expect’ must be determined with reference to all the circumstances.

The overall tone of the phone calls had an emphasis on assisting the individual member. Westpac elicited aspects of their members’ financial objectives (e.g. to minimise fees, to assist with management of the superannuation, financial return maximisation) as part of an effort to influence them to roll over their external superannuation accounts into their Westpac account. These were personal objectives for the purpose of section 766B(3). A reasonable person might therefore expect that the objectives shared would be relevant to, and would be considered by Westpac, in the provision of the subsequent financial product advice. The fact that the objectives elicited from the members were common to most Westpac members did not mean that the objectives ceased to be personal.

The Court also took into account the pre-existing relationship between Westpac and the members (trustee and beneficiary). The Court held that a reasonable person would “expect the advisor to be continuing the pre-existing relationship as a representative of Westpac”[8] and to have access to the member’s relevant information. This conclusion was not impacted by the fact that the advisors who made the calls had no previous contact with the members, nor did the member provide them with information prior to the call.

The disclaimer given once at the beginning of the phone call was not sufficient in the Court’s opinion to alter a member’s expectation on the quality of the advice to be given, nor to alter the character of the recommendation (that it was anything other than specific to the individual member). It was followed immediately by a discussion of the member’s objectives and as such, the Court found that a reasonable person might expect the advisor to have considered their personal objectives regardless of the disclaimer.

Key takeaways

This decision lends itself to the following key takeaways:

• Section 766B(3)(b) poses an objective test that requires a consideration of all circumstances in which the advice was given.
• Objectives, financial situations and needs do not cease to be personal just because they are generally applicable to all or most persons in the member’s position. On that same token, personal advice within the meaning of section 766B(3) does not cease to be personal merely because it can be applied to a number of other members and not just the individual member alone.
• Personal advice does not need to be comprehensive of the totality of the member’s objectives, financial situation and needs. The advisor must have simply considered at least one of those matters.
• Do not underestimate the power of a pre-existing relationship between the advisor and member. Where that exists, it is more likely that a member might expect the advisor to have taken into account one or more of their objectives, financial situation and needs, regardless of the advisor’s lack of previous information on the member.
• The significance of a general advice disclaimer must be assessed in light of all circumstances. It will not always be an adequate safeguard to alter the nature of advice given from personal to general.

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Authored by:

Fidelis McGarrigan, Partner
Hannah Tsavalas, Solicitor

[1] [2021] HCA 3.

[2] Corporations Act 2001 (Cth) s 766B(1).

[3] Westpac (2019) 272 FCR 170 at 232 [267].

[4] ASIC v Westpac (2019) 272 FCR 170 at 179-180 [25].

[5] Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3, 6 [17] (‘Westpac v ASIC’).

[6] Re Westpac (2019) 133 ACSR 1 at 30-32 [111]-[119].

[7] Westpac v ASIC (n 4) 21 [63].

[8] Ibid 23 [74].