High Court finds for ASIC in case about personal financial advice and “social proofing”

Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3

Facts

Two Westpac group entities contacted existing members of two BT superannuation funds which those entities administered, encouraging the members to roll over external superannuation accounts into those funds.

The appeal concerned the interactions between Westpac employees and 14 existing members of the funds in question.

After written contact, each member was contacted by phone and a scripted conversation was entered into.

The calls began with a disclaimer that “everything discussed today is general in nature, it won’t take into account your personal financial needs”.

Immediately after the disclaimer, the Westpac callers set about, and succeeded in, eliciting from each member an indication of their personal objectives of “saving on fees” and “improving the manageability” of superannuation by consolidating accounts.

The adviser affirmed the member’s reasons to consolidate their superannuation through the use of “social proofing” language, by which the member was told that their objectives, beliefs or reasons were commonly held. The adviser then offered to help effect the consolidation of the member’s external superannuation accounts into their BT account. There was no mention of contraindicative factors such as fee penalties or loss of insurance, and no attempt to elicit information about the fees payable to the other funds.

As a result of the campaign, Westpac increased its funds under management by almost $650 million between 1 January 2013 and 16 September 2016.

Law

Section 766B(3) of the Corporations Act 2001 (Cth) defines personal advice as follows:

“financial product advice that is given or directed to a person (including by electronic means) in circumstances where:

1. the provider of the advice has considered one or more of the person’s objectives, financial situation and needs […]; or
2. a reasonable person might expect the provider to have considered one or more of those matters.”

Westpac conceded in the High Court (for the first time in the litigation) that financial product advice was provided during the phone calls.

It was common ground that the callers had not in fact considered one or more of the person’s objectives, financial situation and needs within s 766B(3)(a).

The issue in the appeal was therefore whether the financial product advice was personal advice within s 766B(3)(b).

Findings

The trial judge had found the financial product advice was not personal advice, finding three factors persuasive. The first was that the calls began with a disclaimer that “everything discussed today is general in nature, it won’t take into account your personal financial needs”. Secondly, the advice was offered free of charge. Thirdly, the callers revealed a lack of knowledge about the member’s financial situation that was inconsistent with a capacity to consider one or more of the member’s objectives and financial situation. (Australian Securities and Investments Commission v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited [2018] FCA 2078; 133 ACSR 1).

The Full Court of the Federal Court had overturned the trial judge’s decision and had concluded that the advice was personal financial advice (Australian Securities and Investment Commission v Westpac Securities Administration Limited [2019] FCAFC 187; 272 FCR 170).

The High Court agreed with the Full Court unanimously and held that the calls constituted personal financial advice.

The pithy majority decision of Kiefel CJ, Bell, Gageler and Keane JJ rejected the relevance of the three factors considered by the trial judge.

As to the disclaimer, they stated that it was “not apt to alter either the character of the recommendation in each case as advice specifically about the member’s situation, or the expectation as to the quality of the advice that the phone call was apt to engender in the member”: [8].

As to the advice being offered free of charge, in their view this “was at best neutral in relation to the reasonable expectations of a member approached in this way by his or her financial service provider, to whom he or she already paid fees for financial services related to superannuation”: [9].

As for the third factor, the majority said, “Nothing in the text or context of s 766B(3) conveys any suggestion that advice is personal advice for the purposes of the regulatory scheme of the Act only if it is comprehensive of the totality of the objectives, financial situation and needs of the client”: [10]. In this regard, they rejected Westpac’s contention that “the words ‘one or more of the person’s objectives, financial situation and needs’ refer to categories, so that s 766B(3)(b) is engaged only where a reasonable person might expect that the provider of advice has considered so much of each category as is relevant to the subject matter of the advice”: [19].

The majority also observed that in the context of the consumer protection provisions of Ch 7 of the Act, ‘considered’ in s 766B(3) should be understood as meaning “took account of”: [15], and that there was no basis in the text of s 766B(3), or the context in which it appears, to read the word “considered” as importing a requirement of an active and comprehensive process of evaluation: [17].

Gordon J came to the same conclusions, in the process making observations about the legislative history and purpose of Chapter 7 that are, with respect, useful.

Consequences

Neither entity was authorised, under its financial services licence, to provide personal advice within the meaning of s 766B of the Corporations Act. Nor did the entities seek to comply with the obligations normally attendant on personal financial advice, notably the provision of a written statement of advice (s 946A).

Westpac accepted that if the advice it provided was personal advice, Westpac not only breached the conditions of the relevant licences and the financial services laws, but also failed to do all things necessary to ensure that the financial services covered by the AFSLs were provided efficiently, honestly and fairly within the meaning of s 912A(1)(a) and (c).

These and other Corporations Act provisions have attracted significant new penalties as a result of the changes to the Act made in 2019. According to the Australian Financial Review, the potential fine resulting for Westpac is $14 million.