General advice warnings – tips and traps
A recent Federal Court decision involving Westpac and BT Funds has far-reaching consequences for the financial services sector and those advising clients about new products or opportunities. In this article, special counsel Selina Nutley explains what you need to know and the impact on the financial services sector.
In previous editions of Fundamental, we have written about the proceedings brought by ASIC against Westpac and BT Funds.
The Federal Court found that while Westpac provided a 'recommendation' or 'statement of opinion' amounting to financial product advice, it had not provided personal advice (in breach of its AFSL's authorisations), but it did fail to provide financial services 'efficiently, honestly and fairly'.
Both Westpac and ASIC appealed the Federal Court's findings.
On 28 October, the Full Federal Court handed down its judgment in the appeal. All three members found in ASIC's favour and dismissed Westpac's cross-appeal. Here are the key points you need to understand:
- Westpac deliberately attempted to get customers to move funds to BT without meeting the responsibilities of giving personal financial advice.
- However, those attempts failed because when the telephone exchanges were considered in context, there was—
- an implied recommendation in each call that the customer should accept the service to move funds into their BT account, and
- an implied statement of opinion this step would meet and fulfil objectives the customer had stated in the call, and those objectives were expressed in response to deliberate questions from Westpac.
- This constituted personal advice.
- Westpac's argument that the calls were merely advertising and marketing, as opposed to providing advice, was unsustainable. It ignored the relevant context from the perspective of the customer, each of whom had an existing relationship with Westpac and would expect the bank to act in their interests, rather than its own.
- The importance placed by Westpac on 'closing' the customer over the phone did not ensure the financial services were provided efficiently, honestly or fairly. It did not suggest they should reflect on the decision or seek advice.
What does it all mean?
The court has reaffirmed that the mere delivery of a general advice warning is insufficient if the greater context of the conversation engenders an expectation the client's personal circumstances have been considered. Given ASIC's new 'Why not litigate?' stance, we expect it to bring further cases in similar circumstances.
It remains to be seen whether Westpac will appeal the decision to the High Court.
How can we help?
Our lawyers can help with your queries and provide a presentation to your team explaining the framework around personal advice, general advice and the conduct of marketing campaigns following this recent decision. Please contact us if you are interested in this training for your business.
The latest edition of Fundamental is available now. Download your copy.
The latest edition of Financial Services Thinking is available now. Click here for all the latest news.
With fund managers asking 'Where to now?', the latest edition of our Toolkit for Fund Managers focuses on what actions you can take to help you reset for the road ahead. Download your copy.