Westpac loses High Court appeal on super rollover advice

The appeal concerned whether financial product advice given by Westpac to members of superannuation funds of which they are trustees was “personal advice” within the meaning of the Corporations Act 2001 (Cth).

During a 2014–15 campaign, Westpac had contacted members via phone and advised each to accept an offer to roll over their external superannuation accounts into products run by its subsidiary, BT.

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 decision of the High Court, which confirms the Full Federal Court decision, clarifies the difference between general and personal advice for consumers and financial services providers.

“The High Court has provided clarity concerning the differences between personal advice and general advice. Westpac were actively conducting a sales campaign aimed at rolling customers into Westpac products under the banner of general advice,” ASIC commissioner Danielle Press said.

“By clarifying the distinction between tailored, quality, personal advice in the customer’s interest, and general advice given via a sales campaign, today’s judgment will provide clear guidance to those financial institutions that develop campaigns to sell financial products through direct approaches to retail clients.

“As noted by the High Court, consumers’ decisions regarding superannuation accounts are ‘significant financial decision[s]’ and ASIC has a focus to lift standards in this area.”

The High Court held that Westpac had provided personal advice and found the campaign deviated from “general advice” which does not take a customer’s personal circumstances into account and does not have to be provided in accordance with their best interests to personal financial advice, which has to be provided by licensed financial planners subject to a fiduciary duty.

Personal advice, as defined under s766B(3) of the Corporations Act 2001, includes financial product advice given 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 — as opposed to general advice where the product advice is not accounting for personal circumstances.

The High Court stated the act imposes more onerous obligations on an adviser who provides personal advice, obligations Westpac accepted they had breached if they had provided personal advice.

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,” Justice Gordon said. 

The High Court also said the word “considered” in the Corporations Act referred not to an active process of evaluation and reflection but rather meant taking account of.

“The words ‘one or more of the person’s objectives, financial situation and needs’ in s 766B(3) contemplate that consideration be of at least one aspect of the client’s objectives, financial situation or needs,” the High Court stated.

The High Court stated that a reasonable person in the position of each of the members called by Westpac might expect Westpac to have in fact taken into account at least one aspect of the member’s objectives, financial situation 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 personal objectives of saving on fees and improving the manageability of superannuation; proceeded to confirm the validity of the expressed objectives and appropriateness of the rollover service to achieve them; and then segued into an offer to effect the rollover,” the High Court stated.

“That the members’ objectives were ‘generic’ or generally applicable did not mean they ceased being personal objectives capable of giving rise to that expectation.”

ASIC first alleged that Westpac and BT Funds Management had breached the best interests duty in 2016, by recommending that customers roll over their superannuation into Westpac-related accounts without undertaking a proper comparison of the funds, as required by law.

The corporate regulator had also argued the group had violated its AFSL conditions through providing personal advice to customers.

In 2019, the Federal Court ruled in favour of Westpac and BT Funds Management, finding they did not supply personal advice during the phone calls and that it had fallen under general advice.

However, after ASIC appealed the decision, the Full Court reversed the ruling in 2019, finding that during calls to 14 of the 15 customers, the Westpac staff had provided personal advice, in breach of the company’s Australian financial services licence.

In August last year, the High Court then granted the bank special leave to appeal in what would be a test case for what constitutes general advice as opposed to personal advice on financial products.

The matter will now return to the Federal Court for a hearing on relief on a date to be advised. At that hearing, among other things, ASIC will seek orders for pecuniary penalties in relation to Westpac Securities Administration Limited and BT.