I continue to receive questions from general insurance brokers on the difference between general advice and personal advice.
Personal advice is 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. (my emphasis)
It is important to note that general advice is narrow in application and ASIC and the Court will adopt an approach of ‘substance over form’ as to whether general or personal advice has been provided. That is, providing a general advice warning does not mean that financial product advice is general advice per se, an examination of the facts and circumstances is required.
This question was revisited by the High Court of Australia Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3. Also refer to ASIC media release 21-013MR
Corporations Act
Section 766B(3)(b) of the Corporations Act 2001 (Cth) defines “personal advice” so as to include “financial product advice” given or directed to a person in circumstances where a reasonable person might expect the provider to have considered one or more of the person’s objectives, financial situation and needs. Section 766B(4) defines “general advice” as financial product advice that is not personal advice.
As the High Court stated [T]he division of the universe of financial product advice into “personal advice” and “general advice” serves to organise the obligations owed by a financial product adviser to a retail client, with more onerous obligations being imposed upon the adviser where the circumstances are apt to suggest to the client that the financial product, the subject of the advice, is appropriate to the particular circumstances of the individual client.
Circumstances
Westpac Bank subsidiaries, Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM), conducted two telephone campaigns by the Westpac companies which recommended that customers roll out of their other superannuation funds into a Westpac-related superannuation account. As a result of the campaigns, Westpac increased its funds under management by almost $650 million between 1 January 2013 and 16 September 2016.
The High Court confirmed that WSAL and BTFM breached financial services laws, including the requirement to act in their clients’ best interests and the requirement to act honestly, efficiently and fairly.
The unanimous High Court judgment upheld the Full Federal Court decision regarding the conduct of WSAL and BTFM, dismissing their appeal and holding that they breached the Corporations Act by providing personal financial product advice in calls made to 14 customers. Neither company was licensed to provide personal financial advice.
Judgment
In the judgment, Justice Gordon reinforced that s766B(3) of the Corporations Act, which outlines the meaning of general and personal advice, ‘is directed to the protection of the retail client’ and clarified that ‘[…] the general advice warning must be assessed in light of all the circumstances. The general advice warning was given only once, at the beginning of the telephone conversation. Members were subsequently asked directly about their personal objectives. Members were not encouraged to seek personal advice before deciding whether to accept the rollover service.’
Chief Justice Kiefel and Justices Bell, Gageler and Keane stated, ‘Each member might reasonably have expected that, given the nature of Westpac’s business and its experience and expertise in relation to financial matters like superannuation, Westpac had taken the objectives it had elicited from the member into account in recommending the roll-over service. That is consistent with the recommendation of the service being presented to each member as a “no brainer” having regard to the manifest benefits to each member to be expected from rolling over into a single Westpac account. Given that Westpac’s marketing was apt to create precisely that impression, it can hardly complain that it succeeded. Nor can it sensibly be suggested that the impression so created did not reasonably include an expectation on the part of the member that the recommendation was appropriate for him or her as an individual.’
Justice Gordon emphasised
Personal advice only requires that the adviser has considered, or a reasonable person might expect them to have considered, “one or more of” a person’s objectives, financial situation or needs and that is what occurred on these calls. [80]
Section 766B(3)(b) is concerned with the circumstances of the retail client. Here, those circumstances included the form, content and context of the financial product advice given to the members that they should roll over their external superannuation accounts into their BT account. As O’Bryan J observed, where a provider of advice urges the recipient to follow a particular course of action, there is a greater likelihood that a reasonable person might expect the adviser to have considered the recipient’s personal circumstances. [81]
The test – reasonableness
The question then is whether, for the purposes of s 766B(3)(b), the financial product advice (comprising the recommendation) was given or directed to the member in circumstances where a reasonable person might expect Westpac to have considered one or more of the person’s objectives, financial situation and needs.
In answering that question, Justice Gordon considered several features of s766B(3)(b) are significant.
- First, it poses an objective test, assessed at the time the financial product advice was given and having regard to the circumstances in which that advice was given. It refers to a reasonable person’s expectation, being a reasonable person standing in the shoes of the person receiving the advice. It falls for consideration where financial product advice, intended (or reasonably regarded as being intended) to influence a person in making a decision about a particular financial product or class of financial products, has been given or directed to a person and it is to beassessed having regard to the circumstances in which that advice was given or directed.
- s 766B(3)(b) refers to things which a reasonable person might expect, which has a wider meaning than things which a reasonable person would expect. The standard is one of reasonable possibility, not reasonable probability.
- the phrase “to have considered” bears its ordinary meaning. Section 766B(3)(b) picks up the meaning of “the person’s objectives, financial situation and needs” in s 766B(3)(a) by referring to “those matters”. Section 766B(3)(b) therefore captures circumstances where a reasonable person might expect the provider to have taken into account, had regard to, or given attention to, one or more of the person’s objectives, financial situation and needs.
- the words “one or more of”, when used in s 766B(3)(a) and (b), convey that s 766B(3) applies where an adviser has considered (or might be expected to have considered) one or more (but not necessarily all) of a person’s objectives, financial situation and needs. he inclusion of “one or more of” in s 766B(3) conveys that advisers cannot avoid the disclosure and conduct obligations57 which attach to the provision of personal advice simply by failing to consider one or more of the matters referred to in the provision. The contrary conclusion – that s 766B(3)(a) and (b) do not apply unless an adviser considers all or the whole of a person’s objectives, financial situation and needs – would be unworkable legally and practically. A person may fail to provide complete information to an adviser, whether by way of oversight or otherwise. That is why s 961B(2)(c) recognises that an adviser will meet the duty to act in a client’s best interests when providing personal advice where, among other things, the adviser makes reasonable inquiries to obtain complete and accurate information.
- the phrase “objectives, financial situation and needs” bears its ordinary meaning. As the primary judge held, and as has not been disputed, an objective is an end towards which efforts are directed, a situation is a state of affairs or combination of circumstances and a need is a case or instance in which some necessity or want exists. And the relevant objectives, financial situation and needs referred to must be “the person’s”. They must be personal. That follows linguistically from the words of the provision, including the fact that this kind of advice is described as “personal advice”, and it is also implicit from the obligations that arise in connection with the giving of personal advice. Those obligations would be unnecessary and nonsensical if the only relevant matters to be considered were universal or generic, and not personal.
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