High Court clarifies fundamental financial advice questions

The High Court handed down its decision yesterday in Westpac v ASIC [2021] HCA 3. 

The decision gives clarity around fundamental questions in financial planning – what is financial product advice?  How is personal advice different to general advice?  How do the differences between personal and general advice relate to the best interests duty?

The matter concerned a campaign by Westpac’s “Super Activation Team” which was tasked with writing to and then calling existing BT super fund members and encouraging them to roll any other super accounts into their BT super funds.  Staff were trained on the difference between general and personal advice.  Westpac provided staff with a script for the calls.  The script required the staff to ask customers about their personal financial circumstances including what their other super balances were. 

ASIC alleged that Westpac’s campaign was the provision of financial product advice, personal financial advice (without a license) and that the bank had failed to act in the clients’ best interests in relation to that advice.

The High Court found that:

  • Westpac did provide personal financial advice.  The fact that a disclaimer had been given (“everything discussed today is general in nature”) and that the advice was free was not enough to characterise the advice as general advice.  The Court found that a reasonable Westpac customer would expect that the bank was taking into account one or more of their personal objectives, financial situation or financial needs.
  • Westpac contravened the “best interests” duty.  Based on the call scripts, the Court found there were no substantive steps taken to determine whether the rollover was in the customer’s best interests. 

Clarification of the Corporations Act provisions concerning personal versus general advice and the “best interests” duty is welcome. 

The decision is relevant to advisors engaged in the provision of advice to their clients in at least the following respects:

  1. Advisors who do not hold an appropriate financial services licence are exposed where they provide “financial product advice”.   The Court noted that financial product advice includes when advice given is intended to influence the party in making a decision about a financial product – retain or industry superannuation accounts, life and income insurance are all examples of  financial products;
  2. Even for licencees, if the licence is restricted and does not permit the provision of “personal” financial advice, care will need to be taken not to cross the line into territory where the objectives and circumstances of the particular person are known to the advisor.    A disclaimer asserting the advice is general in nature, may not provide any protection from liability.
  3. Although the case does not directly deal with the question of liability from an advisor to the client who may suffer financial loss as a result of provision of unlicensed personal financial advice, in general terms it would seem that a breach of these regulations would bolster any claim by a client against an advisor for negligence or for misleading or deceptive conduct.

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