Always Be Closing (except when giving general financial advice)

The Full Federal Court’s decision in Australian Securities and Investment Commission v Westpac Securities Administration Limited [2019] FCAFC 187 has attracted quite a bit of attention since it was handed down yesterday.

The appeal concerns Westpac Securities Administration Limited’s (Westpac) attempts to get BT Funds Management Limited's (BT) superannuation customers to consolidate their superannuation funds in their BT accounts. The program was quite successful, resulting BT’s funds under management increasing by almost $650 million.

The Westpac achieved this result through a telephone calls to BT’s existing customers in which the callers attempted tread the line between general and personal financial product advice while ensuring they closed the ‘sale’. To do so, each caller followed guidelines to nudge clients into consolidating their superannuation funds into their BT account. This included asking questions about customers’ requirements, ‘social proofing’ to create a belief in the customer that other customers had similar concerns and had benefitted, and using information gathered in the call to overcome objections and to link to the superannuation product benefits.

At first instance, Gleeson J held Westpac provided financial product advice during its campaign (specifically during the phone calls to customers) but it was general advice. ASIC’s appeal concerned this characterisation of the advice.

Westpac and BT cross-appealed arguing it had not provided financial advice at all during the campaign. It also cross-appealed Gleeson J’s finding that it had breached its duty under s912A(1)(a) of the Corporations Act 2001 (Cth) in that it had failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence are provided efficiently, honestly and fairly.

The Full Court’s decision allowed ASIC’s appeal and dismissed Westpac and BT’s cross-appeal.

The AFR originally saw the decision as a threat to banks’ cross-selling models (subscription needed). By the next afternoon, it was predicting an “end to ‘predatory’ call-centre sales”.

I tend to think the latter piece better reflects the likely outcome from the decision. Though, I would stop short of calling the type of selling in which Westpac was engaged as ‘predatory’, as she does, I agree with Dr Marina Nehme’s assessment when she said:

"I do not think it will have an impact on genuine general advice that is provided in a proper manner and as such it does not mean that this type of advice is unviable"

The Court’s decision that the financial product advice was personal advice hinged on its view that the ‘sales’ guidelines created circumstances in which a reasonable person might expect Westpac to have considered one or more of the customer’s objectives, financial situation and needs. This was despite the Court unanimously finding that Westpac had not, in fact, considered one or more of those matters. As O’Bryan J summarised (at [396]):

The decision concerned an important financial asset of each customer; the callers were known to the customers in the sense that the calls were made on behalf of one of the customer’s superannuation funds; the callers offered to help the customers and asked the customers about matters that were important to them; the callers affirmed the answers given by the customers as being valid or reasonable objectives; the callers implicitly recommended that the customers consolidate their external superannuation accounts into their BT account. Notwithstanding the general advice warning that was given at the outset of the call; notwithstanding no fees were charged for the offer of help; and notwithstanding that it was apparent that the callers did not have information about the customer’s external superannuation accounts, in my view a reasonable person standing in the shoes of the customers might expect the callers to have considered one or more of the person’s objectives, financial situation and needs.

Allsop CJ and Jagot J held similarly.

This passage draws a line between personal advice and general advice. While the first two considerations tending towards a finding that financial product advice in this situation was personal advice may not be easily avoided, it is conceivable that a campaign could and should be able to avoid the latter three considerations. However, such a campaign may not be as successful as this one was at converting calls to sales. But I trust properly advised financial institutions to be able to implement creative solutions.

On ‘fairness’

Another potentially interesting aspect of this judgment was the Court’s comments in relation to Westpac’s cross-appeal concerning s912A(1)(a). As the standard is to ensure financial services are provided “efficiently, honestly and fairly”, it has particular interest for me.

Gleeson J held that the phrase should be read compendiously. This was consistent with authority following Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 672 (Young J). However, the parties did not make this the subject of argument and thus Allsop CJ and O’Bryan J were reduced to expressing doubt as to whether the phrase is to be read compendiously rather than as “containing three discrete behavioural norms,” as Allsop CJ described it (at [170]). His Honour went on to say (at [171]):

I would reserve for an occasion where the matter was fully argued the question whether the phrase is compendious and, if it is, its meaning and application. In particular, I would reserve my views as to the consequences of demonstrating unfairness in the provision of financial services and any need for additional ethical failing.

Allsop CJ then noted the unsuitability of the terms for comprehensive definition before saying of the word ‘fair’ (at [174]):

The word “fair” in its adjectival form, directed to conduct, includes a meaning of “free from bias, dishonesty, or injustice; that which is legitimately sought, pursued, done, given etc.; proper under the rules”: Macquarie Dictionary. It could hardly be seen to be fair, or to be providing financial product advice fairly, or efficiently, honestly and fairly, to set out for one’s own interests to seek to influence a customer to make a decision on advice of a general character when such decision can only prudently be made having regard to information personal to the customer. For one’s own interests, one is advising generally (on this hypothesis) to bring about a result which may not be in the interests of the customer.

O’Bryan J also considered the definition of the phrase “efficiently, honestly and fairly” in the context of s912A(1)(a). His Honour expressed doubt that the phrase should be read compendiously and then noted of the word ‘fair’ (at [426]):

The word “fair” as used in s 912A(1)(a) has not received detailed judicial consideration. However, it seems to me that there is no reason why it cannot carry its ordinary meaning which includes an absence of injustice, even-handedness and reasonableness. As is the case with legislative requirements of a similar kind, such as provisions addressing unfair contract terms, the characterisation of conduct as unfair is evaluative and must be done with close attention to the applicable statutory provision: cf Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [364].

While these comments must be read in the context of this proceeding, neither of these conceptions of ‘fairness’ give me any comfort that the notion is in any sense certain.