The High Court of Australia is set to hear an application brought by subsidiaries of Westpac appealing the decision of the Full Federal Court (Allsop CJ, Jagot and O’Bryan JJ) in Australian Securities and Investments Commission v Westpac Securities Administration Limited  FCAFC 187.
The application challenges the Full Court’s finding that Westpac breached its duty to act in the best interests of customers when providing personal financial product advice during two superannuation rollover campaigns. It also comes at a time when the superannuation industry, including those operating under the ‘Big Four’ banner, are under ongoing scrutiny from ASIC and class action law firms following the Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry.
The decision, and subsequent appeal to the High Court, is significant in that it will provide greater clarification of the sometimes blurry line between the provision of personal and general advice and also spell out those areas where the Court says general advice should not be given. COVID-19 restrictions mean it is unclear when the High Court will be able to resolve this uncertainty, which will be compounded by changes introduced to the superannuation industry.
Litigation of this nature is helpful in that it sends clear signals to the market as to the boundaries between what will be considered legitimate marketing campaigns and those practices that are regulated by the law and subject to greater scrutiny. Further, it is expected that the High Court will also provide greater guidance as to the appropriateness of certain channels (branch, phone, online) when cross selling to customers.
Over the course of 2014 and 2015, Westpac (through two of its subsidiaries) initiated two marketing campaigns which were said to have persuaded existing customers to roll over external superannuation accounts into accounts held with Westpac Securities Administration Limited and BT Funds Management Limited. Those campaigns involved sending letters directly to customers and, more significantly in ASIC’s view, making outbound telephone calls.
At the heart of the dispute is the question of whether the campaigns, particularly the telephone calls, involved the provision of financial product advice and, if so, whether that advice is properly characterised as personal advice (as suggested by ASIC) or general advice, in the context of section 766B of the Corporations Act 2001 (Cth) (Act).
Financial services providers owe clients certain obligations when providing any financial product advice, including that the provider do all things necessary to ensure that the financial services are provided efficiently, honestly and fairly (s 912A(1)(a) of the Act). The obligations of the financial services provider under the Act are significantly greater when giving personal advice as compared to general advice. Amongst other things, in the later situation a financial service provider is obligated to act in the best interests of the client (s 961B of the Act) and to provide a Statement of Advice (s 946A of the Act).
Before the Full Court, ASIC argued that during the telephone calls staff emphasised particular benefits of the rollover but did not suggest that the client consider other factors which may impact on whether the consolidation of superannuation accounts was in their best interests.
At first instance, Westpac successfully established that the campaigns amounted to the provision of general advice rather than personal advice. However, the Court also held that the campaign was not mere marketing or advertising and that during the telephone calls ’recommendations’ or “statements of opinion” were proffered. This amounted to financial product advice and consequently Westpac had failed to ensure that the financial services were provided efficiently, honestly and fairly. The bank later said this decision went too far.
On appeal, the Full Federal Court was critical of the implementation of the campaigns saying that they were “carefully calculated to bring about [the] desired result by giving no more than general advice” and that there was a focus on ‘closing’ by obtaining the client’s agreement to the roll over on the call.
The Court was of the view that the consolidation of superannuation accounts is not a subject suitable for general advice as it requires consideration of a client’s personal circumstances and the features of the funds already held by the client.
While three separate judgments were delivered, Allsop CJ was emphatic that the bank had given personal financial product advice and that this was to be assessed having regard to the communication between the provider of advice and the client “in its whole relational context”.
Going one step further, the Full Court suggested the infringing conduct might have been avoided by ensuring clients had the benefit of a cooling off period and the opportunity to consider their own positions. The Full Court also upheld the earlier decision that the bank’s subsidiaries had failed to do all things necessary to ensure it provided financial services efficiently, honestly and fairly.
The broader impact
While the ultimate decision in this case will turn on the particular facts at play, it will provide helpful guidance on the interpretation of the advice regime for those already addressing misconduct in this space and may give rise to an increase in litigation on these issues. This will be true despite the environment of disruption caused by COVID-19, as there is no evidence to suggest that the regulators, class action law firms or other courts are taking a break.
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