An Important New Decision – What is Personal Advice and What is General Advice?

Australian Securities and Investment Commission v Westpac Securities Administration Limited [2019] FCAFC 187

Key points

  • This case is relevant to anyone using a general advice service model, including insurance brokers, insurers and their agents.
  • Those using general advice telephone sales methods are most at risk especially where customers do not have the opportunity to consider their own position (i.e. pressure type sales or poor sales practices).
  • Where you give general advice which includes express or implied recommendations which are in your own interests, consider whether in the context of the overall engagement with the customer, they are clearly aware of this and are (or can be) properly warned of what needs to be considered by them before deciding.
  • Too much “help” without proper qualification and balanced messaging will create risk, especially where there is an existing relationship of trust etc. In many cases, the risk may be too great and the recommendations will need to be amended or removed if you wish to stay within a general advice model.
  • A General Advice Warning up front can be of no value if subsequent dealings are at odds with it.
  • Focus on “fairness”. Can you say that you have acted with justice, even-handedly and reasonably? If not, there will be a risk.

OVERVIEW

Westpac Securities Administration Ltd (Westpac) and BT Funds Management Ltd (BT) implemented campaigns in writing and by telephone in 2014 and 2015 to encourage their customers to roll over external superannuation accounts into existing accounts (collectively, the BT accounts) that they held with Westpac and BT.

ASIC’s main argument was that they were providing personal advice in the calls and breached a number of associated provisions e.g. best interest duty and the general licensing condition in section 912A(1)(a) to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly.

Westpac and BT contended that no advice or only general advice was provided and succeeded at first instance on this point. ASIC appealed.

On appeal, the Federal Court in Australian Securities and Investment Commission v Westpac Securities Administration Limited [2019] FCAFC 187 found that personal advice was provided.

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. Reasons for this included:

  • the decision regarding consolidation concerned an important financial asset of each customer;
  • the callers were known to the customers in the sense that the calls were made on behalf of one of the customer’s superannuation funds;
  • the callers offered to help the customers and asked the customers about matters that were important to them;
  • the callers affirmed the answers given by the customers as being valid or reasonable objectives; and
  • the callers implicitly recommended that the customers consolidate their external superannuation accounts into their BT account. When the telephone exchanges were considered as a whole and in their context, including importantly the “closing” on the telephone by getting the decision made during the call, there was an implied recommendation in each call that the customer should accept the service to move accounts funds into their BT account carrying with it an implied statement of opinion that this step would meet and fulfil the concerns and objectives the customer had enunciated on the call in answer to deliberate questions by the callers about paying too much in fees and enhancing manageability.

This was found to be the case notwithstanding the following three factors, which could have gone towards supporting a contrary view:

  • the general advice warning was given (however, this was only done at the outset of the call and not after);
  • no fees were charged for the offer of help; and
  • it was apparent that the callers did not have information about the customer’s external superannuation accounts.

The court also considered that the efficient, honest and fair general licensing condition had been breached. Of interest to many will be the view expressed [our italics] that “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 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.”

As a result of this decision, the insurance industry (insurers, their agents and insurance brokers) need to review any current general advice models, materials and procedures in place to consider whether the issues raised in this case give rise to a personal advice and unfairness risk.