Don’t take it personally – High Court clarifies the test for personal financial advice
The High Court handed down its judgment in the much-anticipated case of Westpac Securities Administration Ltd & Anor v Australian Securities and Investments Commission  HCA 3 on 3 February 2021. The issue at the heart of Westpac’s appeal was whether the financial product advice given by Westpac to members was personal advice within the meaning of section 766B(3)(b) of the Corporations Act 2001 (Cth) (Act).
Section 766B(3)(b) of the Act defines ‘personal advice’ to include circumstances where:
- the provider of the advice has considered one or more of the person's objectives, financial situation and needs; or
- a reasonable person might expect the provider to have considered one or more of those matters.
In a 5-0 decision, the High Court dismissed Westpac’s appeal against the Full Federal Court’s finding that two Westpac subsidiaries provided ‘personal advice’ under the second limb of this test during its Super Activation Team campaign. During this campaign, Westpac had contacted members of the superannuation funds for which it was trustee and advised that they should roll any external superannuation accounts into their BT Funds Management Ltd account. The campaign had been structured with a view to the communications with members only constituting general advice, and not personal advice.
The High Court’s judgment provides clear and welcome guidance on the distinction between personal advice and general advice, confirming that a broad definition of ‘personal advice’ which reflects the consumer protection objectives underpinning the provision should be applied. However, the process of determining whether particular financial product advice is personal advice remains highly fact and context dependent.
‘Reasonable person might expect’
The High Court applied a test of ‘whether a reasonable member might expect that Westpac had in fact considered one or more of the member’s objectives, financial situation and needs and not whether the member might expect that Westpac should have considered those circumstances’. In reaching the conclusion that a reasonable person in the position of members contacted by Westpac might have expected Westpac to have in fact considered their objectives, financial situation and needs, the High Court was persuaded by three considerations:
- the inadequacy of the verbal general advice disclaimer given by the Westpac representatives in all the circumstances;
- that the rollover service being offered ‘free of charge’ was not necessarily indicative of the advice being only general in nature; and
- that personal advice need not be comprehensive advice.
The High Court found that the general advice disclaimer presented to each member at the beginning of the call was insufficient 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’. This is consistent with the generally accepted proposition that a disclaimer that financial product advice is only general advice does not make it so, if the associated conduct contains elements of personal advice.
The High Court held that the advice being given without charge did not lessen the expectation of members that the advice was tailored to their circumstances. The Court considered that this factor was at best neutral and it would be reasonable for a member to assume the service was ancillary to fees already paid to Westpac as part of their superannuation fees, or that it was part of a business development venture. The relationship between the advice provider and the client, rather than the commercial terms of the arrangement, will therefore be critical to determining whether a client would reasonably expect that the advice provider has considered their objectives, financial situation or needs.
Finally, the Court held that the evident lack of knowledge of the members’ specific financial affairs by the Westpac callers was not inconsistent with an expectation that the members’ objectives were being taken into account. Section 766B(3) does not require advice to be comprehensive in nature for it to be deemed personal advice.
As the ‘tone and tenor’ of the Super Activation Team campaign involved the Westpac representatives establishing personal rapport with the members they were speaking to, there was always going to be an attendant risk that the members would reasonably expect that the callers had considered their objectives, financial situation or needs when providing any advice. This was particularly so in light of ‘the nature of Westpac’s business and its experience and expertise in relation to financial matters like superannuation’.
Westpac contended that the requirement in section 766B(3) that the advice provider have ‘considered’ the client’s objectives, financial situation and needs necessarily involved an ‘active process of evaluation and reflection’. The High Court disagreed with this interpretation and held that an advisor can have ‘considered’ the objectives of a member without actively and comprehensively evaluating the member’s financial affairs.
The plurality considered that Westpac’s proposed interpretation of section 766B(3) sought to ‘impermissibly narrow the scope of a provision intended to protect consumers’.
‘One or more of the person’s objectives, financial situation and needs’
The High Court dismissed Westpac’s argument that ‘section 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’. In affirming the analysis of the Full Federal Court on this issue, the High Court held that ‘the scope of advice reasonably germane to the resolution of that issue may be expected by both adviser and client to encompass only so much of the client's objectives, financial situation or needs as is relevant to its satisfactory resolution’. This confirms the position that the three elements are not compendious, and advice can be deemed to be personal advice if it considers any one of the objectives, financial situation or needs of the client.
Welcome clarity around the test under section 766B(3)(b)
The High Court has confirmed the objective nature of the test under section 766B(3)(b), which is to be applied at the time the advice is given and having regard to the circumstances in which it is given. Where there is a reasonable possibility that a reasonable person, standing in the shoes of the person receiving the advice, might expect the advisor to have in fact considered one or more of the person’s objectives, financial situation or needs, the advice will be personal advice and subject to correspondingly more onerous obligations.
There are a number of implications flowing from this judgment:
- General advice disclaimers are unlikely to provide sufficient protection if the overall engagement leaves the client with the impression that the advisor has considered their objectives, financial situation and needs. This is consistent with existing ASIC guidance that a person cannot avoid giving personal advice by giving a general advice warning to the client.
- Both individual advisers and institutions with existing relationships with clients should approach each engagement on the basis that the client will presume the adviser will have considered the client’s circumstances. This is particularly the case where the adviser or institution initiates the contact.
- There is an increasing capability and desire to ‘personalise’ mass communications campaigns through eDMs and other distribution channels. By their nature, these campaigns are designed to create (at least the perception of) a personal connection with clients. The Westpac decision demonstrates the incongruity of seeking to claim that such a campaign was not intended to take the client’s objectives, financial situation or needs into account.
- Providing financial advice that is taken to be personal advice can have significant adverse consequences, even where the provision of such advice is only inadvertent. While the High Court was not required to consider whether Westpac’s conduct constituted a breach of its ‘best interests’ duty to members under section 961B, or its duties under section 912A to do all things necessary to ensure it provided the relevant financial services efficiently, honestly and fairly, it follows from the High Court’s decision – that personal advice had been provided – that the Full Federal Court’s previous findings that Westpac had breached both duties stand.
The matter will now be remitted to the Federal Court to be heard on relief. ASIC has indicated that it will seek pecuniary penalties in relation to Westpac’s conduct.
 Westpac Securities Administration Limited and BT Funds Management Ltd were the appellants in the case and are referred to collectively here as ‘Westpac’.
 Ibid 3.
 Ibid 8.
 Ibid 9.
 Ibid 14.
 Westpac Securities Administration Ltd & Anor v Australian Securities and Investments Commission  HCA 3, 17.
 Ibid 19.
 Ibid 20.
 Regulatory Guide 244: Giving information, general advice and scaled advice, para 47.
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