ANALYSIS

WHAT IS PERSONAL ADVICE? WHAT IS GENERAL ADVICE?

The Australian Securities and Investment Commission (ASIC) was concerned that Westpac was giving personal advice, without all the obligations that are associated with giving advice in that form.

BY MARK RADFORD

Principal, Radford Lawyers

ASIC commenced civil penalty proceedings against Westpac on 22 December 2016, alleging that Westpac provided personal financial product advice to customers and that through this conduct, the companies breached their general licensing obligation to act honestly, efficiently and fairly in section 912A(1)(a) of the Corporations Act.

The alleged conduct was with respect to two telephone campaigns by Westpac which recommended that customers roll out of their other superannuation funds into a Westpac-related superannuation account. As a result of the campaigns, Westpac increased its funds under management by almost $650 million between 1 January 2013 and 16 September 2016.

On 21 December 2018, the Federal Court initially found that Westpac breached the Corporations Act but that ASIC did not make out its case that personal advice was provided.

This was appealed and on 28 October 2019, the Full Court of the Federal Court of Australia reversed the decision at first instance and unanimously found that personal advice had been given and upheld the decision that Westpac had breached s912A(1)(a).

The Court concluded that in the circumstances, a reasonable person standing in the shoes of the customers might expect the callers to have considered one or more of the person’s objectives, financial situation and needs in making the recommendation.

The Court also considered that the efficient, honest and fair general licensing condition had been breached on the basis “It could hardly be seen to be fair, or to be providing financial product advice fairly, or efficiently, honestly and fairly, to set out for one’s own interests to seek to influence a What should brokers do?

Any insurance broking firm that is operating under a general advice model needs to pay careful attention to this decision. Indeed, it is probably relevant to say that every insurance broking firm should now seriously consider whether they wish to consider working under a general advice model (where that is the case) or whether they prefer to work under a personal advice model.

Broking firms that wish to continue to operate under a general advice model need to take careful steps to review how matters are discussed with clients, and how information is provided to clients. Most likely it will be important to have your legal adviser review these matters, in order to ensure the firm is not giving personal advice, as Westpac was found to have been doing.

Broking firms that operate under a personal advice model, or who wish to do so, must ensure that the personal advice obligations in the Corporations Act are being fully met when doing so. Again, this will most likely require a review by an experienced compliance professional or a legal adviser to ensure all appropriate steps are being taken at all times. 

customer to make a decision on advice of a general character when such decision can only prudently be made having regard to information personal to the customer. For one’s own interests, one is advising generally (on this hypothesis) to bring about a result which may not be in the interests of the customer. The general advice is given to reinforce an assumption that fewer fees (in number) will mean less fees (in amount). There was a degree of calculated sharpness about the practice adopted in the QM Framework”.

Chief Justice Allsop also noted that perhaps Westpac could have avoided the above conclusion and result by the callers ensuring that the customers had the opportunity to consider their own positions and, having done so, later communicate an acceptance, if they wished. This was, however, not the intended model of the engagement. “Closing” was to take place, if at all possible, on the call over the phone.”

On 24 April 2020, the High Court granted Westpac Special Leave to appeal the decision of the Full Court and the appeal was heard by the High Court on 7 and 8 October 2020. The High Court unanimously concluded that Westpac provided personal financial product advice in calls made to customers and thus breached financial services laws, including the requirement to act in their clients’ best interests and the s912A(1)(a) requirement to act honestly, efficiently and fairly.

The matter will now return to the Federal Court for a hearing on relief on a date to be advised. At that hearing, among other things, ASIC will seek orders for pecuniary penalties in relation to Westpac’s conduct.

IMPORTANT NOTICE

This article is designed to provide helpful general guidance on some key issues relevant to this topic. It should not be relied on as legal advice. It does not cover everything that may be relevant to you and does not take into account your particular circumstances. It is only current as at the date of release. You must ensure that you seek appropriate professional advice in relation to this topic as well as to the currency, accuracy and relevance of this material for you.