Are you providing personal advice when talking to your customer?
Product issuers spend a lot of time training their employees on the difference between personal advice and general advice to ensure they do not stray into providing personal advice. Particularly when the sales team knows the customers they are talking to.
However, the courts had never considered the personal advice provisions of the Corporations Act 2001 (Act) and therefore the industry was left to work out the interpretation of the personal advice provisions of the Act by itself (with guidance from ASIC).
In December 2018, the Federal Court was asked by ASIC to decide if Westpac had provided personal advice when it’s “Super Advice Team” contacted customers of Westpac’s BT Funds Management Limited (BT) superannuation business and ‘encouraged’ them to roll their other superannuation accounts into their BT account.
The court decided Westpac had not provided personal advice because the sales staff had not ‘considered’ the customer’s objectives, financial situation and needs. However, it was found that Westpac had failed to provide the financial services efficiently, honestly and fairly.
ASIC appealed that decision and the Full Federal Court has now decided:
The sales team was clearly providing personal advice because: a) although the sales team did not ‘consider’ the customer’s ‘objectives, financial situation and needs’ (because they were running through a rehearsed script)(section 766B(3)(a)), b) the recipient of those calls ‘would have expected’ the sales team to have considered their objectives or financial situation or needs (section 766B(3)(b)).
Westpac breached the efficiently, honestly and fairly requirement in section 912A of the Act.
What is personal advice?
Personal advice is financial product advice that is given or directed to a person where:
the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (First Limb); or
a reasonable person might expect the provider to have considered one or more of those matters (Second Limb).
The following factors lead to an increased risk of product issuers being found to have provided personal advice:
a) Knowledge of the customer: preexisting relationships often provide increased knowledge of the individual circumstances of the customer, including knowledge of existing investments.
b) The significance of the financial issue to the customer, in this case the topic was the customer’s superannuation which was an important topic about which careful advice ought to have been provided. By way of a threshold question, it might be useful to ask, is this a decision that a reasonable person in the position of this customer would make with the benefit of general advice only?
It is the totality of the interactions with the customer and the context that will inform the Court’s consideration of whether the adviser has acted in accordance with section 766B, including any pre-existing relationship and the overall tone of the call (in this case being one of assistance rather than marketing).
General Advice Warning
The court considered the general advice warning that was given at the beginning of each call to be ineffective because:
the warning was given before the customer was asked about their objectives, financial situation and needs;
the nature of the call negated the warning because it was expressed as a ‘helpful’ call designed to illicit what the customer’s objectives and needs were and then to meet those needs by suggesting consolidation; and
the warning was not repeated at any time during the call after the customer had discussed their individual circumstances.
Are you ‘considering’ the customer’s objectives, financial situation or needs?
The Super Advice Team framework required the caller to ask specific questions of the customer about the amount of fees they currently pay and the administrative burden of holding multiple superannuation accounts. In making the recommendation to consolidate the customer’s superannuation accounts, Westpac implied this would achieve the customer’s objectives (including reduced fees and administrative burden).
‘Consider’ simply means to take into account, pay attention to or have regard to information. It does not mean you must consider all three of the person’s objectives, financial situation and needs but rather it requires sufficient aspects of one or more of the three matters to be considered.
The court found that although the Super Advice Team staff had not considered the customer’s objectives, financial situation or needs – given the preexisting relationship between the member and Westpac, and the fact the Super Advice Team had spoken to the customer about their objectives and provided a response about how consolidation might assist with those concerns, it was reasonable for the member to expect the advice was being given with the member’s personal circumstances in mind, and was in their best interests.
What this means for you
You should avoid speaking to customers about their personal circumstances where possible. These include conversations such as “I have $250,000 to invest, which of your products can I put that into given what else I have of yours?”, and “I’d prefer something I can exit from in 6-12 months with a good return, will this product suit me?”
Any implication that the product will meet or fulfil a stated concern or objective of the customer is likely to be considered personal advice.
A general advice warning should be reiterated throughout the conversation and prominently displayed on written material. However, a warning will not convert personal advice into general advice. It will help to illustrate the general ‘tone’ and ‘tenor’ of the conversation held with the customer.
Please contact Brit Ibanez on 0421 355 503 or Emily Pendlebury on 0437 010 197 to discuss the delivery of general advice in your business or the case more generally.
The information contained in this article is for information purposes only and does not constitute legal advice.
About the authors
Brit Ibanez is a Partner that provides a full range of regulatory and dispute resolution services from risk management advice through to large-scale litigation with a focus on funds management, financial services, and corporate governance best practice.
Emily Pendlebury is a commercial litigation lawyer whose experience includes large scale litigation and class actions, misleading or deceptive conduct, financial services, debt recovery and general contractual disputes.
1. Australian Securities and Investment Commission v Westpac Securities Administration Limited  FCAFC 187
2. S 766B(3) Corporations Act 2001 (Cth)
3. Allsop CJ at , Jagot J at  and O’Bryan J at