High Court to provide clarity on the meaning of Personal and General Financial Product advice

The High Court of Australia is set to provide clarity as to when the line will be crossed between the giving of general financial product advice and the giving of personal financial product advice.

Westpac sought, and was granted, special leave to appeal the decision of the Full Court of the Federal Court in Australian Securities and Investments Commission v Westpac Securities Limited [2019] FCAFC 187, which was handed down in October 2019.

Primary judgment

A single judge of the Federal Court handed down a decision in January 2019: ASIC v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited [2018] FCA 2078.


The matter related to two Westpac super trustees that wrote to their members offering to find out whether they had holdings with more than one super fund.  After a member accepted this service, and where the Westpac entity found that the member had multiple super holdings, a Westpac representative called the member with the aim of getting them to roll their other super holdings into their Westpac super fund.

The Westpac entities and their representatives attempted to conduct this campaign (which resulted in an increase of over $600 million in funds under management) using a general advice model.  ASIC claimed that the Westpac entities were providing personal advice.  It also claimed that they were breaching the requirement to do all things necessary to provide financial services efficiently, honestly and fairly.

Reasoning in the primary judgment

The primary judge, Justice Gleeson, found that the Westpac entities provided general advice and not personal advice.  Her reasoning hinged on her interpretation of the word “considered”.  Chapter 766B of the Corporations Act 2001 says that financial product advice will be personal advice if the provider of the advice has “considered one or more” of the recipient’s “objectives, financial situation or needs” or if a “reasonable person might think” this was the case.

Justice Gleeson said that “considered” meant something more than just “taken into account”.  It required a certain amount of intellectual energy to be turned to the information.  She found that the circumstances in which the calls occurred could not cause a reasonable person to think that the caller had considered the circumstances of the customer in this manner.

Despite this, Justice Gleeson found that the Westpac entities’ calls breached the requirement to do all things necessary to provide financial services efficiently, honestly and fairly.  This was based on a range of factors, including that the entities gave the impression that:

  • rolling over to Westpac super was appropriate and there was no possible lack of alignment between the customer’s interests and the entity’s interests; and
  • the roll over was an obvious and uncontroversial course of action for each customer, when that was not the case.

The Full Court of the Federal Court judgment

In October 2019, the Full Court of the Federal Court handed down its decision in relation to an appeal made by ASIC (in relation to the general advice finding) and a cross-appeal made by Westpac (in relation to the efficiently, honestly and fairly finding).  As noted above, the case is Australian Securities and Investments Commission v Westpac Securities Limited [2019] FCAFC 187.

The Full Court was made up of three judges.  Although they came to the same conclusions, each judge wrote a separate judgment.

The judges disagreed with the primary judge’s finding that the advice provided was general advice.  They said it was personal advice.  However, they agreed with the primary judge that the Westpac entities had not done all things necessary to provide financial services efficiently, honestly and fairly.

Key aspect – the word “considered”

The key respect in which the appeal judges disagreed with the primary judge was in their interpretation of the word “considered”.

The primary judge had based her analysis of the word on the way in which it is used in administrative law.  In this area of law, it is sometimes necessary to determine whether a government official has considered particular information in making a decision.  There will often be statutory provisions telling them what they must consider.

However, the appeal judges said it was not right to extrapolate the understanding of the word in administrative law to section 766B of the Corporations Act 2001.  In administrative law, the purpose of the word “considered” is to ensure that the decision-maker turns proper intellectual attention to the information.  In Chapter 7 of the Corporations Act 2001, the word “considered” indicates a tipping point at which additional consumer protection measures kick in.

The appeal judges disagreed that in-depth intellectual engagement with the information was required in order for the “considered” aspect of the definition to be met.

They said that a person has “considered” information for the purposes of the personal advice definition if they have simply taken it into account.  Likewise, “a reasonable person might expect the provider to have considered one or more of those matters” should be read as “a reasonable person might expect the provider to have taken into account one or more of those matters”.

The appeal judges found (as the primary judge had done) that the Westpac entities did not consider the information elicited from the customers.  However, they found that the advice was provided in circumstances where a reasonable person might expect the caller to have considered one or more of the customer’s objectives, financial situation or needs.

In particular, the sales techniques used deliberately elicited each customer’s objectives, such as the desire to reduce fees or the desire to have all their super in one place.  The use of social proofing only served to reinforce the impression (created by a range of factors listed by the judges) that the entity had considered the information provided by the customer in each case.  The fact that a general advice warning was provided did not overturn the impression, created by the other factors, that the Westpac entities had taken into account the objectives of the customer during the call.

Efficiently, honestly and fairly

The appeal judges also found that the marketing campaign conducted by the Westpac entities caused them to breach the requirement to do all things necessary to provide financial services efficiently, honestly and fairly.  In most respects, they agreed with the reasoning of the primary judge on this front.

Detailed judicial consideration of this requirement is welcome in the post Royal Commission era in which the requirement is getting a much greater work-out by ASIC than ever before.

The phrase “efficiently, honestly and fairly” has been considered in Story v National Companies and Securities Commission (1988) 13 NSWLR 661.  This judgment explores the inter-relationship between the three words in the phrase.  However, Justice O’Bryan preferred to look at each of three words separately.  He found that the relevant one in this case was “fairly” and that Westpac did not do all things necessary to ensure that the financial product advice given through its calls was given fairly.

He said there was an asymmetry of knowledge between the Westpac entity and the customer in each case.  Westpac’s knowledge (not shared by the customers) was that:

  • the decision to consolidate into the Westpac super fund was important, with potentially significant future implications
  • the decision involved a range of considerations including fees and performance of different funds
  • a prudent customer would weigh up those matters before making a decision.

O’Bryan J held that the Westpac entities took unfair advantage of that asymmetry.  They had an existing relationship of trust with each customer.  The entities did not tell customers what to consider or suggest that they reflect on the decision or seek advice about it.  Justice O’Bryan said:

Through the campaign, Westpac pursued its own self-interest and disregarded the best interests of its customers.  That conduct can rightly be described as unfair.

Chief Justice Allsop observed that the entities gave the impression they were there to help the customer when they were only there to help themselves.  He was particularly struck by the importance of the “closing” being over the phone, which he said might be seen as “not wanting to let the customer out of the… shop.”

Other take-outs from the case

While the central take-outs from the case relate to the word “considered” and the concept of “efficiently, honestly and fairly”, there are aspects of the judges’ broader reasoning that are interesting to note.

These aspects relate to determining what is financial product advice, what is personal advice and the best interests duty.

Financial product advice

The judges’ observations in relation to determining what is financial product advice flesh out the legislative provisions when it comes to:

  • implied recommendations or statements of opinion
  • advertising and marketing.

The judges all agreed that an implied recommendation or statement of opinion can trigger the definition of financial product advice.  While the judges took slightly different views of which elements of the calls amounted to recommendations and which amounted to statements of opinion, they all agreed that these can be present without being explicit.  They drew upon the approach of Sackville AJA in ASIC v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 in forming this view.

The Westpac entities were careful to train callers to use particular language (for example, “you could potentially save on fees”, rather than “you will save on fees”) and to refrain from making an explicit recommendation to roll over into the Westpac super fund.  Nevertheless, Justice Jagot said, “the primary judge’s conclusion… that each customer received a recommendation that they should roll over their external accounts into their BT account is unassailable.”

The judges said that not all advertising and marketing will meet the definition of “financial product advice”.  According to Chief Justice Allsop, some of it will fall into the category of “mere puffery” and “could not meaningfully be described or characterised as advice”.  Justice Jagot said:

It is true that all advertising and marketing is intended to influence the listener to acquire the provider’s products but that advertising and marketing is not necessarily advice.

This is a surprising approach, given that most marketing or advertising activities involving financial products would typically contain the elements of the definition of “financial product advice” – that is a recommendation or statement of opinion which:

  • is intended to influence a person to make a decision in relation to a financial product; or
  • could reasonably be regarded as being intended to have that influence.

Chief Justice Allsop said that, when deciding whether something met the definition of financial product advice, consideration must be given to the “applicability of [Chapter 7] as a whole” and also to examine the communication or exchange in its whole context.  He said:

Here, the relational exchanges and the engagement in conversation designed to influence customers to make a financial decision constitute the very kind of context and circumstance to which the Chapter and Division were intended to be directed.

Nevertheless, one wonders whether this interpretation is what the legislature intended and the Treasury (through its delegated powers) understood when making the Corporations Regulations 2001, specifically regulation 7.7.14 which anticipates that advertising by a product issuer on billboards and in the media will tend to be sufficient to attract the definition of general advice.  (Regulation 7.7.14 removes the need for the product issuer to provide a general advice warning in these circumstances.)

This interpretation also poses problems in identifying where the line falls between advertising and marketing on one hand and financial product advice on the other.  One useful indicator was identified by Justice Jagot.  Her view that the calls were financial product advice (as opposed to mere marketing) was strongly based in the attitude of “helpfulness” exhibited by the Westpac entities towards the customers.

Personal advice

As observed above, the central aspect of the decision was the appeal judges interpretation of the word “considered”.  However, the arguments raised by the Westpac entities caused the judges to consider some interesting issues.

Firstly, the phrase “has considered one of more of the person’s objectives, financial situation or needs” is grammatically problematic.  This created somewhat of a distraction in the case.  The Westpac entities argued that the phrase means the provider of the advice needs to have considered one or more of these categories as a whole in order to attract the definition of personal advice.  However, Justice O’Bryan said that:

[Section] 766B(3) requires only that the provider has considered to some extent one or more of the recipient’s objectives, financial situation or needs; the paragraph does not require that the provider has considered any of them “as a whole”.

This should not come as a surprise to AFS licensees.

Secondly, when considering the aspect of section 766B which asks whether a “reasonable person” might expect the provider to have considered one or more of those matters”, the appeal judges took a narrower view of this than the primary judge did.

The primary judge took this to refer to an ordinary member of the community.  The appeal judges interpreted this as meaning a reasonable person standing in the shoes of the person receiving the advice.  While this seems like a subtle difference, much can flow from it.  The narrower interpretation means the reasonable person is someone in possession of the information known to the customer.  The broader interpretation raises questions about how much the reasonable person can be expected to know.

Justice Jagot also reminded us that:

[Section] 766B(3)(b) refers to what the reasonable person might expect.  This is a lower standard than, for example, what the reasonable person would have expected.  The standard is one of reasonable possibility not reasonable probability.

Thirdly, the concept of the Westpac entities holding themselves out as there to “help” seemed to play into the conclusion that the advice was personal.

As well as running the argument that the calls fell short of financial product advice altogether (and, rather, fell into the category of “marketing”), the Westpac entities ran a similar argument that, if the calls were financial product advice, they were not personal advice as they fell, rather, into the category of “self-interested marketing”.

Chief Justice O’Bryan rejected this argument, citing the attitude of helpfulness and the existing relationship with each customer as reasons why this conduct was personal advice and not just mere marketing.  Justice Jagot also said:

[T]he tenor of the calls, with the repeated emphasis on the purpose being to help the customer in relation to their superannuation, would have reinforced in the mind of the reasonable person in the customer’s position that the purpose of the call was, in fact, as stated, to help the customer by Westpac ensuring what was done was in the customer’s interest even if, at the same time, it was also in Westpac’s interest…

Justice Jagot referred on multiple occasions to this perception on the part of the customer that the entity was acting in their interests.  Of course, a statutory best interests duty is imposed whenever a person provides personal advice.  In this case, the judge used the perception that the licensee was acting in the client’s best interests as a proxy for conveying the idea that the client would perceive that their objectives, financial situation or needs had been taken into account.

Best interests duty

The primary judge, although she found that personal advice had not been provided, said that, if her finding had been different, the best interests duty would have been breached.

Justice O’Bryan said that:

Her Honour concluded that Westpac contravened that provision because the best interests of the customers could only be served by advice as to whether the rollover service was in their best interests and Westpac did not attempt to inform the customers whether it was in their best interests to accept the advice.

Westpac argued that the primary judge, by this method, reversed the onus of proof, failing to look at the substance of the advice in each case.

Justice O’Bryan disagreed with Westpac and favoured the construction of the primary judge.  He confirmed that whether or not section 961B is met rests on a question of process, not substance.

He said:

[T]he section is concerned with the actions taken by the provider in the formulation of the advice and the objective purpose of the provider in taking those actions and giving the advice.

He pointed out that the section requires the provider to act in the best interests of the client in providing the advice and not that the advice itself be in the best interests of the client.

Justice Jagot said:

To discharge the duty in s 961B(1) the provider must have as its purpose or object acting in the best interests of the client.

Chief Justice Allsop said:

The whole approach of Westpac was to obtain an advantage for itself without engaging with the personal circumstances of the customer so as to avoid the consequences of the responsibilities of providing personal advice.

This commentary suggests that the duty is more purpose driven than substance driven.  This potentially has significant implications for the way in which ASIC and compliance teams review advice files in financial planning practices for compliance with the best interests duty.  These reviews tend to focus on the substance of the advice and whether “the client is likely to be in a better position if they follow the advice provided”.  See ASIC Regulatory Guide 244: Giving information, general advice and scaled advice.

Next stop: High Court

In May 2020, the High Court of Australia granted the Westpac entities special leave to appeal the decision of the Full Court of the Federal Court handed down in October 2019.

In its written submissions to the High Court, Westpac lists three issues for the Court’s consideration.  These issues are expressed as follows:

  • what is the proper approach to the objective limb of personal advice in s 766B(3)(b) of the Corporations Act 2001 (Cth) (Act)? Does it depend on the expectation of a reasonable person that the advice provider had in fact considered the recipient’s personal circumstances, or an expectation that the advice provider acting in the recipient’s best interests should have considered those circumstances?
  • Does “consideration” of a person’s personal circumstances within the meaning of s 766B(3) require that the advice provider engage with and evaluate those circumstances in formulating the advice?
  • How much of a person’s “objectives, financial situation or needs” must have been considered by an advice provider before the advice is “personal advice” under s 766B(3)?

In relation to the first issue (the approach to s 766B(3)(b)),  the Westpac entities contend that the appeal judges made three errors in their interpretation of section 766B(3).  Westpac says that the Full Court mistakenly introduced a “normative” element into section 766B(3)(b) based on “assumptions as to what a reasonable person might generally expect the advice provider should have considered if it were acting in the recipient’s best interests”.

The Westpac entities assert that the test in section 766B(3)(b) is not whether a reasonable person might expect it to act in the customer’s best interests.   Rather, it is a factual inquiry into whether “a reasonable person in the recipient’s position might expect, based on the interactions between the advice provider and the recipient and their context, that the provider had in fact considered the recipients’ personal circumstances”.

In response, ASIC says the appeal judges did not impose a “normative” element into section 766B(3)(b) but that they applied the statutory test “being what a reasonable person might expect that Westpac considered”.

With respect to the interpretation of the term “consideration” in section 766B(3), Westpac submits that the appeal judges made an error when they determined the term to mean no more than “pay attention or regard to”, “any taking into account” or “pay attention to, to have regard to or to view attentively”.  The Westpac entities argue that the primary judge was correct when she held that the term “considered” involves “an active process of evaluating or reflecting upon the subject matter of the consideration, appropriate to the provision of financial product advice”.

ASIC submits that each appeal judge was correct to reject the primary judge’s interpretation and instead apply the term’s ordinary meaning.  Specifically, ASIC submits that the term “consideration” should not be limited “only to circumstances which involve a certain type, level or duration of consideration …., and not other types of consideration..”.

In relation to the third issue for determination by the High Court, the Westpac entities submit that the term “consideration” in section 766B(3) should be read together with section 961B,  such that “the advice provider must, in fact or reasonable apprehension, consider the minimum irreducible personal circumstances of the customer relevant to the subject matter of the advice in question”.  Westpac clarified its submission in its Reply by stating “each of a person’s “objectives”, “financial situation” and “needs” is a category. The personal advice obligations will be engaged where the adviser considers (or a reasonable person would  expect that the adviser had considered) at least one of those categories in giving the advice. That requires consideration of so much of the category as is relevant to the advice in question”.

ASIC, however, submits that “what is required is consideration of at least an aspect of one of the three categories” and that such inquiry will be a question of fact.

The High Court Decision

On 3rd February, 2021 the High Court unanimously dismissed Westpac’s appeal. The Concise statement of the Judgement explains that in doing so the Court affirmed that:

  • the word “considered” merely means “took account of”;
  • the phrase “one or more of a person’s objectives, financial situation or needs” contemplate that consideration be of at least one aspect of the client’s objectives financial situation or needs;
  • A reasonable person in the position of each of the members called by Westpac might have expected that Westpac had in fact taken into account at least one aspect of the client’s objectives, circumstances or needs. This expectation was engendered by the fact that Westpac had elicited from each member, with whom Westpac had a pre-existing relationship, an indication of his or her objectives in saving on fees and improving the manageability of superannuation; proceeded to confirm the validity of the expressed objectives and appropriateness of the roll-over service to achieve them; and then segued into an offer to effect the roll over. That the members’ objectives were generic or generally applicable did not mean they ceased being personal objectives capable of giving rise to that expectation.

What should you do?

This case underscores the difficulty of providing general advice in one-on-on conversations, particularly in a marketing or sales context.  As the law currently stands, techniques used to drive a sale with an individual (such as social proofing and overcoming objections) are likely to put you in a personal advice situation.

Here are some tips:-

  1. The three judgments of the Full court of the Federal Court, which was upheld, total 107 pages.  If you only have time to read one of the three judgments, go that of Justice O’Bryan.  At about 21 pages, his is the shortest of the judgments.  It is also the most clearly and concisely written of the three.
  2. Do not rely on carefully selected language to protect you from straying into financial product advice (if you are aiming to provide factual information only) or personal advice (if you are aiming to provide general advice only). Consider the tenor of the entire communication with the client in the context of the licensee’s relationship with them.  What is the licensee really aiming to convey?  What is it aiming to get the client to do?  This tells us what messages are being conveyed implicitly.Be mindful that Chief Justice Allsop said:What is advice, and whether it is personal or general, are questions most readily answered by a consideration of the communication or exchange in its whole relational context.  They are questions not to be answered by picking over individual and decontextualised parts of a whole communication or language.
  3. If you are running a business on a general advice model, be careful about the representations you make to customers. Do not represent that you have the customer’s interests at heart when, in reality, you are running a sales campaign to benefit the business.  Do not downplay the significance or complexity of a decision such as rolling over super or taking out insurance.  Resist the temptation to “close” when this is the first telephone conversation you have had with the customer on the topic.  If there are key factors that the client should be considering in making their decision, alert the customer.  Here, they were things like fees, returns and insurance at respective super funds.
  4. If your general advice policies are based on how the communication might appear to a reasonable bystander, shift your thinking. These policies should be based on how the communication might appear to a person in the customer’s shoes.  Also, remember that you must contemplate how the communication might  This is wider than considering how it would appear.
  5. Consider the degree to which your relationship with the customer is based on trust. This may impact whether a reasonable person in the shoes of the customer might expect that the licensee (or the provider of the advice) has considered one or more of their objectives, financial situation or needs.  In this case, the fact that the licensees were trustees of the customers’ super funds may have played a role.  Some types of businesses will have greater relationships of trust with customers than others.  A customer receiving advice one-on-one from a financial planning firm is more likely to consider that their circumstances have been taken into account than a customer calling a direct seller of life insurance.  Financial services businesses will find it easier to steer clear of personal advice for new clients than for existing clients.  Depending on your business model, you may abandon attempts to give general advice in one-on-one settings or limit such attempts to new clients.
  6. If you are a personal advice business, consider whether to shift the way in which you assess files for compliance with the best interests duty under section 961B. Assess the motivation of the adviser in providing the advice.  Identify what the adviser stands to gain from each potential course of action open to the client.  Documents relating to business development strategies might play a role here.  For example, is the business striving to get more SMSF clients?  Is that leading to a pattern of SMSF recommendations?  Consider whether the substance of the advice be assessed only for compliance with section 961G, which relates to appropriateness.

Authors: Initially written by Samantha Hills (Special Counsel) and Rachel Erlich (Senior Associate), and updated by Grant Holley (Partner & Co-Founder) following the High Court decision.

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