Financial product advice after the Westpac case


Posted By on 18/02/21 at 6:14 PM

By Darrell Choong (Lawyer) and Venn King (Special Counsel)

The highest court in the land has clarified what “personal advice” entails in the context of financial product advice, in Westpac Securities Administration Ltd v ASIC [2021] HCA 3. Financial advisers, and people involved with superannuation matters, need to pay close attention to the guidance provided by this judgement.

What happened?

The case concerned two Westpac Group entities (Westpac Securities Administration Ltd and BT Funds Management Ltd) and their communications with pre-existing members of Westpac Group’s superannuation funds.

Westpac contacted existing members of its funds to encourage them to roll over superannuation held with other providers, into their pre-existing Westpac superannuation accounts. During these calls, Westpac provided financial product advice to the members, in relation to membership of one of Westpac’s super funds. That advice was intended to influence the members to, and had an implied recommendation that they should, roll over their external superannuation into their Westpac accounts.

However, the kicker was that the Westpac entities were permitted under their Australian financial services licence (“AFSL”) only to provide general financial product advice (which has fewer onerous consumer protections than are required for personal advice). The advice Westpac provided to members over the phone went beyond the scope of “general financial product advice” which breached the conditions of Westpac’s AFSL.

Financial product advice

Case history

ASIC commenced litigation alleging that Westpac’s advisers had provided personal advice without complying with the applicable legal obligations.

At first instance, the Federal Court held that Westpac’s advice was not personal advice, as Westpac’s advisors did not consider the relevant members’ “objectives, financial situations or needs”.

However, on appeal, the Full Court of the Federal Court found that the relevant advice was personal advice, because personal advice revolved around the consideration of a client’s needs – that is, their personal objectives, personal financial situation, or personal needs – and that consideration of any one of these three matters was sufficient. The Full Court further found that even where the client’s needs were not actually considered by the adviser, if a reasonable person in the client’s position could expect their adviser to have considered their personal situation, then the advice provided is “personal advice” regardless.

On further appeal, the High Court dismissed Westpac’s case and upheld the ruling of the Full Court of the Federal Court. The High Court held that asking about aspects of a member’s objectives amounted to the relevant adviser considering (or that a reasonable person in the client’s position would expect the adviser to have considered) at least one of the three aspects of the client’s objectives, financial situation or needs, and that the adviser’s own intentions in asking about the members’ objectives were irrelevant. The High Court held that the following factors led to this conclusion:

  • the subject matter of the advice – which concerned the consolidation of multiple superannuation accounts;
  • the existing relationship between the parties – the nature of the pre-existing relationship between Westpac and the members in its superannuation schemes;
  • the purpose and tenor of the calls – the calls had a repeated emphasis on helping and assisting clients in relation to their superannuation;
  • the members’ objectives – the advisers called to ask members about their personal objectives, which a reasonable person might expect to be relevant to the advice, and thus to have been considered by Westpac; and
  • the form, content and context of the financial product advice – the members were given a ‘general advice warning’ at the beginning of the telephone conversations, but were not encouraged to seek personal advice before accepting Westpac’s roll over service.
What do the applicable rules and regulations say?

There is a distinction between “personal advice” and “general advice” in the Corporations Act 2001 (Cth).

“Personal advice” is a recommendation or statement of opinion (or a report of either):

  • that is intended to influence a person in making a decision in relation to a financial product;
  • that could reasonably be regarded as being intended to have such an influence; and
  • where the provider has considered one of more of the client’s objectives, financial situation, and needs (or a reasonable person might expect the financial product provider to have considered one or more of these matters).

By contrast, “general advice” is financial product advice that is not “personal advice”. In essence, this requires the advice to be provided without accounting for a client’s objectives, financial situation or needs, and that a reasonable person would not have expected the adviser to have considered any of these things.

What guidance has the High Court given on “personal advice”?

In relation to “personal advice”, the High Court clarified that:

  • Objective test – The question of whether a reasonable person might expect the adviser to have considered at least one aspect of the client’s objectives, financial situation and needs, is an objective test, and it is assessed at the time the advice is given, with regard to the circumstances in which the advice was given.
  • Might expect – “A reasonable person might expect” means that there need only be a reasonable possibility, as opposed to a reasonable probability.
  • Considering – “Consider” requires only that the financial adviser has taken the relevant matter into account.
  • Considered – “To have considered” means that a reasonable person might expect the adviser to have taken into account, had regard to, or given attention to, one or more of the person’s objectives, financial situation and needs, rather than all of these issues.
  • Personal circumstances – The “objectives, financial situation and needs” of a client means the client’s personal objectives, financial situation and needs. This means that there must be specific consideration of those matters for that individual.
What now?

Financial product advisers should check the conditions of their AFSL – if your AFSL does not permit the provision of personal advice, or you don’t want to comply with the onerous obligations required for personal advice, you must not provide personal advice. Even if you think you are only providing general advice, if the circumstances are such that the client might reasonably expect you to have considered their personal circumstances, you will be taken to have provided personal advice – and will need to be authorised to do so and to comply with the detailed obligations surrounding personal advice.

Even if you have informed clients that you are only offering general advice, such a disclaimer may not provide protection from liability, and caution must be exercised to avoid any discussion of an individual’s particular circumstances.

Additionally, if you have existing relationships with your clients, there may now be a presumption that you would have considered your client’s objectives, financial situation and needs when you engage in further communications with them.

If you have queries about what the High Court’s decision means for your business, or to discuss financial services queries in general, please contact Venn King (Special Counsel, vking@khq.com.au) or a member of our corporate or superannuation & financial services teams on +61 (0)3 9663 9877 or contact@khq.com.au.

 

Venn King Principal Solicitor

Venn King is a Principal Solicitor in KHQ’s Corporate & Commercial team.

Venn utilises his broad corporate and finance experience in the context of complex investment structuring transactions... Read More