In Australian Securities and Investments Commission v Westpac Securities Administration Limited and BT Funds Management Limited  FCA 2078, the Federal Court of Australia decided that even though the marketing campaign by Westpac and BT to encourage customers to roll over superannuation accounts into their account held with Westpac and BT avoided being personal advice, Westpac and BT failed to do all things necessary to ensure that the financial services covered by their financial services licences were provided efficiently, honestly and fairly in contravention of s 912A(1)(a) of the Corporations Act 2001 (Cth).
Justice Gleeson concluded that because the callers did not consider one or more of the objectives, financial situation and needs of the customers to whom the advice was given the calls were not personal advice.
But if on appeal it was decided that it was “financial product advice” which was “personal advice”, she was satisfied that Westpac did not act in the best interests of the customers to whom it gave that advice because those interests could only be served by advice as to whether the rollover service was in their best interests. Westpac did not attempt to inform the customers to whom it gave the “financial product advice” whether it was in their best interests to accept the advice. Background.
A decision on appropriate penalties has been adjourned pending the resolution of any appeal on liability.
The campaign included written communications by which Westpac offered its customers a service comprising a free search for other superannuation accounts they might hold (“external accounts”); and telephone calls during which customers, who may or may not have accepted the free search offer, were offered a further service of arranging a rollover of external accounts into the customer’s BT account (“rollover service”).
When asked whether the consultant would recommend a rollover of other funds into their BT account the consultant reiterated the fact that they can only provide general advice and as the client may be seeking personal advice they offered to pass the client on to an adviser to obtain more specific advice.
The campaign also involved encouraging customers to accept the rollover service with the use of “social proofing” by which customers were told that their beliefs or reasons were commonly held.
As a result of these efforts, Westpac successfully increased its funds under management by almost $650 million.
ASIC argued that in the 15 cases in evidence the team members crossed “an important and clear line” by encouraging customers by employing a subtle sales technique to make a personal pitch to customers that involved asking a customer about their personal motivations and then linking that to the financial product being offered.
ASIC claimed that, contrary to the terms of Australian financial services licences held by each of Westpac and BT, Westpac’s technique involved the provision of “financial product advice” that was “personal advice” within the meaning of s 766B(3) of the Act.
There was no evidence that any of the relevant customers was disadvantaged by Westpac’s conduct.
Westpac denied any contravention of the Act. Westpac said they simply sought to encourage customers to roll over superannuation into their existing BT account by offering to do it for them on the telephone and had a marketing aspect. Westpac argued there was no analysis of whether the BT fund was the “best” choice for the customer who wished to consolidate their super into a single fund before the customers accepted the rollover service.
Summary of conclusions
Except in one case, the calls to the 15 customers involved the provision of “financial product advice” within the meaning of s 766B(1) of the Act. In particular, each caller impliedly made a recommendation to that effect.
Each recommendation in 14 cases was intended to influence the relevant customer in making a decision in relation to a particular financial product, being their respective BT accounts or their respective external accounts.
In some cases, the calls also involved the provision of “statements of opinion” that were “financial product advice” within the meaning of s 766B(1), however, for each customer, the “recommendations” and “statements of opinion” were given in the same circumstances for the purposes of determining whether s 766B(3) applies.
The “financial product advice” was not “personal advice” within the meaning of s 766B(3)(a) of the Act because the callers did not consider one or more of the objectives, financial situation, and needs of the customers to whom the advice was given.
Further, the “financial product advice” was not given in circumstances where a reasonable person might expect the provider of that advice to have considered the financial situation of the customer.
It follows that ASIC failed to demonstrate the alleged contraventions of s 912A(1)(b) of the Act, being that Westpac and BT breached the conditions of their respective AFSLs by providing personal financial product advice.
Efficient, honest and fair?
Justice Gleeson concluded that “While not dishonest, in my view, the adoption and implementation of these aspects of the QM Framework approach failed to ensure that the “financial product advice”, being a financial service covered by Westpac’s AFSLs, was provided “efficiently, honestly and fairly” in contravention of s 912A(1)(a) of the Corporations Act 2001 (Cth).”
“by adopting the approach recorded in the QM Framework, Westpac provided “financial product advice” comprising the implied recommendation to accept the rollover service without explaining that a prudent customer may wish to consider matters of the kind that would be considered if the recommendation had been given as personal advice. Thus, Westpac made its recommendations without informing the customers about the possible relevant considerations for a prudent customer and without informing the customers that they could not make the recommendation if they the customer had directly asked for their advice.
The QM Framework also involved encouraging customers to accept the rollover service with the use of “social proofing” by which customers were told that their beliefs or reasons were commonly held. The fact that a customer’s belief or rationale was commonly held was not a matter that would have provided a basis for the recommendation, if it had been given as personal advice. In my view, as it was not a sound basis for decision making, it should not have been used to provide assurance to customers, with a view to influencing them to accept the rollover service.
By making the recommendations in an unsolicited call, using an informal style and a structure likely to be perceived as generic, and where consolidation of super accounts had obvious benefits, and by offering to effect a rollover on the telephone, Westpac conveyed the impression to the customers that the recommendation was an obvious and uncontroversial course of action for the particular customer, when that may well not have been the case. The impression was arguably reinforced by the “social proofing” content of the calls. The callers’ attitude of helpfulness also reinforced the impression that the recommendation was appropriate for the particular customer and that there was no possible lack of alignment between the interests of the customers and Westpac.
Although Westpac asserted emphatically that the calls revealed its self-interest, Westpac did not explicitly identify its interest in influencing the customers to accept the rollover service. The QM Framework approach was admittedly self-interested and did not necessarily promote the best interests of the customers but the approach did not draw the customers’ attention to either of those matters. Rather, it strongly conveyed the impression that Westpac was assisting the customer by its rollover service and, particularly by “social proofing”, the impression that customers should feel comfortable in accepting the service without giving consideration to their particular circumstances. In fact, as Westpac knew, there were matters (of the kind that would be considered if the “financial product advice” was given as “personal advice”) that, acceptance of the rollover service might have adverse consequences for the customer.
While not dishonest, in my view, the matters demonstrate the adoption and implementation of the QM Framework approach failed to ensure that the “financial product advice”, being a financial service covered by Westpac’s AFSLs, was provided “efficiently, honestly and fairly” in contravention of s 912A(1)(a) of the Act.”