Australian Securities and Investments Commission v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited

[2018] FCA 2078

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited [2018] FCA 2078

File number:

NSD 2204 of 2016

Judge:

GLEESON J

Date of judgment:

21 December 2018

Catchwords:

CORPORATIONS – where Westpac conducted campaign to encourage customers to roll over external superannuation accounts into existing Westpac accounts – whether calls to customers involved provision of “personal advice” within meaning of Corporations Act 2001 (Cth) s 766B – whether recommendations or statements of opinion made, including by means of Westpac’s “social proofing” technique, with intention to influence financial product decision – recommendations and statements of opinions made with requisite intent – whether Westpac considered “one or more of [the customers’] objectives, financial situation and needs”, or whether a reasonable person might expect Westpac to have done so – no consideration given, and reasonable person would not expect such consideration in context in which relevant recommendations and statements of opinions made – no “personal advice” given – no consequent failure to comply with ss 946A or 961B or breach of ss 912A(1)(b) or 961K(2)

CORPORATIONS – whether Westpac failed to do all things necessary to ensure financial services provided “efficiently, honestly and fairly” as required by s 912A(1)(a) – where Westpac policy directed callers to encourage customers to roll over their superannuation with limited identification of customers’ personal circumstances and no consideration of customers’ best interests, explanation of risks or sufficient warning that Westpac was not considering such matters – contraventions found

Legislation:

Corporations Act 2001 (Cth)

Superannuation Industry (Supervision) Act 1993 (Cth)

Financial Services Reform Bill 2011 (Cth)

Replacement Explanatory Memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 (Cth)

Evidence Act 1995 (Cth)

Financial Services Reform Act 2001 (Cth)

Financial Services Reform Bill 2001 (Cth)

Corporations Law (Cth)

Security Industry (New South Wales) Code

Australian Securities and Investments Commission Act 2001 (Cth)

Cases cited:

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27

Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73

Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (In Liq (No 2) [2017] FCA 709

Australian Securities and Investments Commission (ASIC) v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527

Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liq) [2017] FCA 497

Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (In Liq) [2012] FCA 414; (2012) 88 ACSR 206

Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209

Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980; (2008) 169 FCR 522

Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 90

Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1

Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345; 122 ACSR 47

Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503

Cussen v Federal Commissioner of Taxation [2004] NSWCA 383; (2004) 51 ACSR 530

Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543

La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2011] FCAFC 4; (2011) 190 FCR 299

Independent Commission Against Corruption v Cunneen [2015] HCA 14; (2015) 256 CLR 1

Legal Services Board v Gillespie-Jones [2013] HCA 35; (2013) 249 CLR 493

Lithgow City Council v Jackson [2011] HCA 36; (2011) 244 CLR 352

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

Public Transport Commission (NSW) v J Murray- More (NSW) Pty Ltd [1975] HCA 28; (1975) 132 CLR 336

R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) [1989] SASC 1941; (1989) 1 ACSR 93

Re Hres and Australian Securities and Investments Commission [2008] AATA 707; (2008) 105 ALD 124

Rennie Golledge Pty Ltd v Ballard [2012] NSWCA 376; (2012) 82 NSWLR 231

Story v National Companies and Securities Commission (1988) 13 NSWLR 661

Macquarie Dictionary Online
Heydon JD, Cross on Evidence (10^th ed, LexisNexis, 2015)  

Date of hearing:

5, 6, 7, 14 and 16 February 2018

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

466

Counsel for the Plaintiff:

Dr J Renwick SC with Mr M Kallyk and Mr T Kane

Solicitor for the Plaintiff:

Australian Securities and Investments Commission

Counsel for the Defendants:

Mr RG McHugh SC with Mr M Izzo

Solicitor for the Defendants:

Allens

ORDERS

NSD 2204 of 2016

IN THE MATTER OF WESTPAC SECURITIES ADMINISTRATION LIMITED (ACN 000 049 472) AND BT FUNDS MANAGEMENT LIMITED (ACN 002 916 458)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Plaintiff

AND:

WESTPAC SECURITIES ADMINISTRATION LIMITED (ACN 000 049 472)

First Defendant

BT FUNDS MANAGEMENT LIMITED (ACN 002 916 458)

Second Defendant

JUDGE:	GLEESON J
DATE OF ORDER:	21 DECEMBER 2018

THE COURT DECLARES THAT:

1.In its adoption and implementation of the QM Framework in connection with its campaign to encourage customers to roll over superannuation accounts into their account held with the first defendant, the first defendant failed to do all things necessary to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly in contravention of s 912A(1)(a) of the Corporations Act 2001 (Cth).

2.In its adoption and implementation of the QM Framework in connection with its campaign to encourage customers to roll over superannuation accounts into their account held with the second defendant, the second defendant failed to do all things necessary to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly in contravention of s 912A(1)(a) of the Act.

THE COURT ORDERS THAT:

3.The parties file and serve short minutes of orders for the further conduct of the proceeding on or before Thursday 31 January 2019.

4.The proceeding be listed for a case management hearing on Thursday 7 February 2019 at 9.30 am.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
INDEX

Introduction	[1]
Consolidating super funds	[10]
Summary of conclusions	[17]
Background facts	[27]
Westpac’s Super Activation Team	[36]
The “marketing aspect” of Westpac’s customer calls	[43]
Internal training on difference between general and personal advice.	[48]
QM Framework and “social proofing”	[50]
Legal framework	[68]
Relevant statutory provisions	[68]
Principles of statutory interpretation	[80]
General observations	[81]
Section 766B(1): “Recommendation or a statement of opinion”	[83]
Section 766B(1): “Intended to influence a person in making a decision in relation to a particular financial product”	[106]
Section 766B(3): Financial product advice given “in circumstances where”…	[109]
Section 766B(3): “Provider of 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”	[111]
A person’s objectives, financial situation and needs	[111]
Subjective limb (a): Provider of advice has “considered” relevant matters	[123]
Objective limb (b): What a reasonable person might expect a provider of advice to have considered	[129]
Who is a reasonable person?	[132]
Westpac’s intentions	[136]
Issues for determination	[139]
Communications with customers	[141]
“General advice warnings”	[148]
Customer 1 (caller AA)	[149]
Customer 2 (caller AA)	[160]
Customer 3 (caller BB)	[170]
Customer 4 (caller FF)	[176]
Customer 5 (caller DD)	[181]
Customer 6 (caller AA)	[187]
Customer 7 (caller AA)	[192]
Customer 8 (caller AA)	[198]
Customer 9 (caller CC)	[203]
Customer 10 (caller AA)	[209]
Customer 11 (caller AA)	[212]
Customer 12 (caller AA)	[220]
Customer 13 (caller AA)	[227]
Customer 14 (caller CC)	[230]
Customer 15 (callers DD and EE)	[236]
“Recommendations” and “statements of opinion”	[240]
Significance of contextual written correspondence	[240]
Alleged recommendations	[246]
Customer should roll over their external accounts into their BT Lifetime Account or BT Business Account Fund	[246]
Customer should take steps to roll over their external accounts into their BT Lifetime Account or BT Business Account Fund on the phone immediately	[261]
Alleged statements of opinion	[264]
Rolling over the customer’s external accounts into their BT account may or would lead the customer to having a more efficient and efficacious set up of his or her superannuation and therefore greater returns	[264]
A rollover would lead the customer to save on fees	[270]
References to what other customers said	[271]
By rolling over her external accounts into her BT account, the customer would potentially save on fees	[272]
Saving on fees and manageability were the two main reasons why clients like to combine their superannuation	[275]
Customer 1	[277]
Combining superannuation accounts made a lot more sense from a management point of view	[277]
One of customer 1’s other accounts may have no funds in it due to potentially having been swallowed up by fees	[279]
Rolling over her external accounts into her BT Lifetime Account may or would lead customer 1 to saving on fees and achieving a greater level of manageability	[281]
Customer 2	[285]
By rolling over his external accounts into her BT account, customer 2 would potentially save on fees	[285]
It makes a lot more sense for customer 2 to pay only one set of fees, potentially, rather than multiple sets of fees	[286]
Many BT customers say that they want to consolidate their superannuation funds to save fees	[287]
What caller AA could do for customer 2 was to help customer 2 roll over his external accounts into his BT Lifetime Account that day over the phone and that this would save customer 2 from having to complete any forms and potentially save customer 2 on fees	[288]
Once Customer 2’s external accounts were rolled over into his BT Lifetime Account he would start potentially saving on fees	[289]
Customer 2 rolling over his external accounts into his BT Lifetime Account may or would lead to him saving on fees	[290]
Customer 3	[291]
While some funds may charge an exit fee for leaving the fund, most of BT’s clients prefer to pay the one-off exit fee rather than paying ongoing other fees	[291]
Caller was seeking to put customer 3 in a better position than he was in presently through having a fund with MLC	[293]
Customer 3 did not have to keep his total and permanent disablement (“TPD”) cover	[294]
Customer 3 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees at the same time as providing an adequate level of insurance cover	[297]
Customer 4	[298]
The caller could potentially consolidate customer 4’s superannuation accounts to potentially save him on fees	[298]
Customer 4 consolidating his external accounts into his BT Business account may or would help him cut down on fees and lead to a greater level of manageability by having all his accounts all in the one place	[300]
Customer 5	[301]
The caller may be able to help Customer 5, through the super search that had been initiated, to potentially save on fees	[301]
The caller could definitely help customer 5 increase the manageability of his superannuation by consolidating his superannuation and that all she needed to do so was his tax file number	[302]
Once customer 5’s external accounts were rolled over into his BT Business Account, he would achieve easier management	[303]
Customer 5 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees and lead to a greater level of manageability	[304]
Customer 6	[305]
The caller may be able to potentially save customer 6 on fees by bringing her external accounts over to her BT Lifetime Account	[305]
Potentially saving on fees and having easier manageability were probably the two main reasons that BT clients liked to consolidate their superannuation	[306]
Consolidating superannuation accounts definitely makes sense from a logical standpoint	[307]
Caller AA could go through customer 6’s superannuation on the call and bring them all over to her BT Lifetime Account so that she could start reaping the benefits of consolidation	[308]
A separate account customer 6 had might not have had much money in it as it may potentially have been eaten up by fees	[311]
Once customer 6’s external accounts were rolled over into her BT Lifetime Account, her accounts would be organised and she would potentially start saving on fees	[312]
Customer 6 rolling over her external accounts into her BT Lifetime Account may or would lead to her saving on fees and obtain a greater level of manageability	[313]
Customer 7	[316]
Caller AA may be able to help customer 7 organise his superannuation by combining them into his BT Lifetime Account	[316]
Creating a bigger pool of money to potentially get a better performance and paying one set of fees and avoiding multiple sets of fees were some of the main reasons that clients liked to consolidate their superannuation	[317]
Caller AA could help customer 7 consolidate his superannuation into his BT Lifetime Account that day so that he could pay just one set of fees and potentially have a larger pool of money which he could potentially get a better return from	[318]
Once customer 7’s accounts were consolidated into his BT Lifetime Account, he would have a larger pool of money in his account to potentially get him better returns in the future and save him on fees	[319]
Customer 7 rolling over his external accounts into his BT Lifetime Account would or may lead to a more efficient and efficacious set up of his superannuation and therefore greater returns	[320]
Customer 8	[321]
Caller AA could potentially save customer 8 fees by rolling over any external accounts into his BT Business Account	[321]
A lot of BT’s clients say that they are concerned that they are losing money on fees	[322]
Customer 8 was potentially paying multiple sets of fees so it definitely made sense from a logical standpoint for Customer 8 to consolidate his accounts	[323]
Caller AA could actually help customer 8 consolidate his external accounts into his BT Business Account over the phone and that would save him from having to fill out multiple forms	[324]
Customer 8 could substantially save on fees once he consolidated his external accounts into his BT business account	[325]
In two or three weeks customer 8’s external accounts would be rolled over into his BT Business Account and he would start potentially saving on fees	[326]
Customer 8 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees	[327]
Customer 9	[328]
A lot of the customers that caller CC spoke to like the fact that they could potentially save on fees by combining their super and also mentioned the fact that it was a little easier to manage	[328]
Once customer 9’s external accounts were rolled over into his BT Business Account he would hopefully potentially save on fees	[329]
Customer 9 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees	[330]
Customer 10	[332]
Caller AA could help customer 10 organise his superannuation by bringing all his external accounts to his BT Business Account	[332]
A lot of BT’s clients are combining their superannuation accounts into their BT fund so that they have a larger amount in their account and because they were attracted to the past performance that BT accounts have been able to yield for its clients	[333]
Having a larger amount of money in a person’s account and in a performing fund like BT was always a good thing	[334]
Caller AA could help customer 10 consolidate his external accounts into his BT Business Account over the phone and get his account all nice and organised and avoid customer 10 having to do any forms	[335]
In two or three weeks customer 10’s external accounts would be rolled over into his BT Business Account and it would all be in the one place for customer 10 and hopefully starting to work hard for his retirement	[336]
Customer 10 rolling over his external accounts into his BT Business Account may or would lead to him having a bigger amount in his account in a fund with attractive past performances	[337]
Customer 10 rolling over his external accounts into his BT Business Account would or may lead to a more efficient and efficacious set up of his superannuation and therefore greater returns	[338]
Customer 11	[339]
Caller AA could help bring customer 11’s external accounts over to his BT Business Account to potentially save him on fees	[339]
Rolling over superannuation to have it all in the one spot and not lose money in finance and fees on accounts to which customer 11 was not making contributions definitely made sense	[340]
Rolling over superannuation on the basis of manageability and saving on fees were probably the main reasons that most of BT’s clients liked to roll over their superannuation	[341]
Rolling over superannuation made superannuation a lot easier to manage and saved on costs and, that after all it was customer 11’s retirement savings at the end of the day	[342]
Caller AA could help bring customer 11’s superannuation over to his BT Business Account on the phone so that customer 11 could start potentially saving on fees and that the only thing he needed was customer 11’s tax file number	[343]
Customer 11’s comment that the amounts in his other funds were dwindling away with fees and charges was a pretty common story that BT hear from a lot of their clients and that it was a good thing customer 11 was consolidating his superannuation	[344]
Customer 11 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees and improving the manageability of his superannuation	[345]
Customer 12	[346]
AA could potentially save customer 12 on fees by rolling over any external accounts into this BT Business Account	[346]
Having potentially better performance is one of the main reasons that BT’s clients say they like to consolidate their external accounts into their BT account	[347]
Obviously superannuation was a lot more manageable when it is all in the one place	[348]
Caller AA would actually help customer 12 bring his external accounts over to his BT Business Account verbally over the phone so that customer 12 would start to potentially get the performance he was after	[349]
Customer 12 rolling over his external accounts into his BT Business Account may or would lead to him having better performing superannuation	[350]
Customer 12 rolling over his external accounts into his BT Business Account would or may lead to a more efficient and efficacious set up of his superannuation and therefore greater returns	[351]
Customer 13	[352]
AA could potentially save customer 13 on fees by rolling over any external accounts into his BT Business Account	[352]
Achieving a better performance out of a customer’s superannuation is one of the main reasons that BT’s clients like to consolidate their superannuation, along with the fact that it is more manageable when it is in one place	[353]
By consolidating his superannuation, customer 13 would be potentially saving on fees, depending on if he is paying fees on other accounts	[354]
Caller AA could go through customer 13’s super results and actually help him consolidate his external accounts into his BT Business Account over the phone that day using a verbal request and that we would have all his accounts in one place so he could potentially start getting better performance from his superannuation	[355]
In two or three weeks customer 13’s external accounts would be rolled over into his BT Business Account and would be all nice and organised and he would be potentially getting the performance that he wanted	[356]
Customer 13 rolling over his external accounts into his BT Business Account may or would lead to him having better performance from his superannuation	[357]
Customer 13 rolling over his external accounts into his BT Business Account would or may lead to a more efficient and efficacious set up of his superannuation and therefore greater returns	[359]
Customer 14	[360]
A lot of customers caller CC speaks to like the fact that by combining their superannuation accounts it is a little easier to manage and that you can potentially save on fees	[360]
Customer 14 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees and achieving a greater level of manageability	[361]
Customer 15	[362]
Caller DD could potentially help customer 15 save on fees by consolidating any external accounts into his BT Business Account	[362]
Consolidation had the benefit of putting all Customer 15’s superannuation in the one place	[363]
Customer 15’s stated reasons for rolling over his superannuation accounts into his BT Business Account so as to not lose money anywhere else and to get an increase in his superannuation funds overall were understandable	[364]
Customer 15 rolling over his external accounts into his BT Business Account may or would lead to him saving on fees, lead to a greater level of manageability and reduce the risk that he was losing money in other accounts while also allowing him to enter into a salary sacrifice arrangement through his employer	[365]
Summary of findings of “statements of opinion”	[366]
Intention to influence	[369]
Circumstances in which “financial product advice” was given or directed to the customers	[373]
Customers’ objectives, financial situation and needs	[375]
Financial situation	[376]
Needs	[379]
Objectives	[380]
Westpac’s “consideration”	[383]
What a reasonable person might expect the callers to have considered in the circumstances	[394]
Conclusions regarding “personal advice”	[399]
Failure to ensure services provided “efficiently, honestly and fairly”	[400]
Findings of fact	[404]
Legal framework	[412]
Application of legal framework	[431]
Failure to act in the best interests of the customer	[449]
Conclusion	[465]

GLEESON J:

INTRODUCTION

1. The plaintiff (“ASIC”) claims relief against the defendants (“Westpac”) for alleged contraventions of the Corporations Act 2001 (Cth) (“Act”) in connection with a campaign to encourage customers to roll over superannuation accounts held with other entities (“external accounts”) into their existing accounts with the first defendant (“WSAL”) and the second defendant (“BTFM”) (“BT account”). 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”).

2. As a result of these efforts, Westpac successfully increased its funds under management (“FUM”) by almost $650 million.

3. ASIC’s case was principally based on telephone calls made to 15 customers during 2014. Each of the 15 customers was a member of either the BT Lifetime Account Fund or the BT Business Account Fund (collectively “BT funds”), held an account in one of those funds (“collectively “BT accounts”) and was a retail client for the purposes of s 761G of the Act.

4. Westpac described its activities as a “plainly self-interested” sales or marketing exercise, by which members of its “Super Activation Team” (see [36] and following below) reiterated “generic” messaging which identified and emphasised desirable features of the rollover service (although Westpac also contended that it was necessary to consider the interactions with the 15 customers separately).

5. However, ASIC argued that the Super Activation Team did not encourage customers to roll over by simply doing these things. Rather, ASIC argued, the team members crossed “an important and clear line”. They encouraged 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.

6. ASIC claimed that, contrary to the terms of Australian financial services licences (“AFSLs”) held by each of WSAL and BTFM, Westpac’s technique involved the provision of “financial product advice” that was “personal advice” within the meaning of s 766B(3) of the Act.

7. By this conduct, ASIC contended, the customers were subjected to a risk of harm because they received personal financial product advice which did not take into account all of their relevant personal circumstances. In particular, ASIC noted, had the advice been provided in accordance with the Act’s requirements for the provision of “personal advice”, it may have resulted in customers being advised to maintain their current fund and take no action, for example, to avoid losing part or all of particular types of insurance; or being advised to “roll into” superannuation funds that were in fact more appropriate to their personal circumstances than a BT fund, for example, because they would pay lower fees and/or premiums.

8. ASIC sought declarations to the effect that the defendants’ conduct involved:

   (1)breaches of conditions of their respective AFSLs by providing personal financial product advice in contravention of s 912A(1)(b);

   (2)contraventions of s 946A of the Act, because such personal financial product advice was provided without the provision of a “Statement of Advice” within the meaning of the Act;

   (3)contraventions of s 961K(2) of the Act, because the defendants failed to act in the best interests of the customer for the purposes of s 961B(1);

   (4)contraventions of s 961K(2) of the Act, because the defendants adopted and implemented a “QM Framework” (see [50] below) to provide personal advice to customers to roll over their external accounts into their BT account, regardless of the appropriateness of the BT account to the customer, for the primary purpose of generating FUM for Westpac, and thereby not doing all things necessary to ensure that the financial services covered by the licence were provided “efficiently, honestly and fairly”; and

   (5)per se breaches of s 912A(1)(c) of the Act.

9. Westpac denied any contravention of the Act. As Westpac put it, 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. The exercise clearly and obviously had a marketing aspect, Westpac argued. According to Westpac, the main issue for the Court was whether, on any of the 15 sets of interactions with their customers, their conduct of what was otherwise a legitimate commercial activity breached the law because it involved the provision of “personal advice” within the meaning of the Act.

   Consolidating super funds

10. As a general proposition, there are benefits that accrue to consumers from consolidating multiple superannuation funds. At the relevant times, ASIC itself promoted consolidation on its “Moneysmart” website, on the page “Consolidating super funds”, under the heading “Reduce your super stress”. ASIC encouraged consumers to recognise that holding multiple super funds is a problem, saying relevantly:

    How many super statements did you receive this year? Do you find it hard to keep track of your super accounts? Have you lost some of your super over the years? You’re not alone. Here are the steps to take to sort it out and save on fees.

    Why you should consolidate your super

    The benefits of putting all your small super into one account include:

    ŸSaving costs by paying only one set of fees

    ŸReducing your paperwork

    ŸMaking it easier to keep track of your super

11. The “Moneysmart” website page also makes some important cautionary points that were not routinely made by Westpac during the telephone calls that are the subject of the proceeding:

    Before you decide to move funds

    Before you consolidate your super funds here are some things to check:

    ŸAre there any termination fees

    ŸWill you be able to get the same level of insurance in your chosen fund

    ŸThat your employer can contribute to your chosen fund

12. The “Moneysmart” website also notes that consolidating super funds involves making a choice as to the fund in which multiple funds will be consolidated. It says:

    Smart tip

    When consolidating your super, don’t just choose the fund with the highest balance. The best fund for you may be one of your small accounts, or a completely new fund.

13. In this case, there was no evidence that any of the relevant 15 customers was disadvantaged by Westpac’s conduct. Conversely, on its own defence, Westpac did not consider the issues identified on the “Moneysmart” website for those customers or routinely advise the customers that those issues warranted consideration before they accepted the rollover service. Accordingly, except to the extent that the 15 customers did it without Westpac’s knowledge, 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

14. As explained below, “financial product advice” within the meaning of the Act may be “personal advice” or “general advice”. An important element of Westpac’s case was its efforts to ensure that members of the “Super Activation Team” understood the difference between general and personal advice and did not provide personal advice. The evidence included a BT PowerPoint presentation dated January 2014 concerning the distinction between personal and general advice. A case study in the presentation included a response to the customer’s question whether the consultant would recommend a rollover of other funds into their BT account. The response given is:

    As I am only qualified to provide general advice, I am unable to advise you as to whether you should consolidate all these funds into BT Super. This would require personal advice from a qualified financial advisor who would consider information such as:

    whether you will have to pay any termination fees moving from existing funds

    whether you will lose any insurance benefits

    whether the fund you want to consolidate into has all the services you want

    whether employer can contribute to your chosen fund

    Would you like me to refer you to one of our financial advisors? If not, I can provide you with general advice regards the features and benefits of the BT Super Fund for you to consider.

15. The response is described as “Factual information” and explained as follows:

    The consultant has reiterated the fact that they can only provide general advice and recognised that the client may be seeking personal advice and has offered to pass the client on to an adviser to obtain more specific advice.

16. ASIC argued that Westpac’s approach in the PowerPoint presentation reflected “orthodoxy” in relation to the distinction between general and personal advice, in contrast to the approach of the “Super Activation” team. ASIC’s case was that it was not legally significant that the alleged recommendations (or statements of opinion) were unsolicited and not in response to a customer’s request for advice.

    Summary of conclusions

17. Except in the case of customer 3, 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, and contrary to Westpac’s case study above stating that a consultant qualified to provide only general advice was unable to advise customers as to whether they should consolidate their funds into the BT account, each caller impliedly made a recommendation to that effect.

18. Each recommendation 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. ASIC has not demonstrated a relevant intention to influence customer 3.

19. 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. Accordingly, even if the “recommendations” and “statements of opinion” comprised separate pieces of “financial product advice”, there is no need to give separate consideration to whether the “statements of opinion” were “personal advice”.

20. 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.

21. 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.

22. Accordingly, the “financial product advice” was not “personal advice” within the meaning of s 766B(3)(b).

23. It follows that ASIC has failed to demonstrate the alleged contraventions of s 912A(1)(b) of the Act, being that WSAL and BTFM breached the conditions of their respective AFSLs by providing personal financial product advice.

24. Similarly, ASIC has failed to demonstrate the alleged contraventions of s 946A and 961B of the Act, both of which depended upon proving that Westpac had provided “personal advice”.

25. 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. 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. 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.

26. 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).

    BACKGROUND FACTS

27. WSAL and BTFM are, and at all material times were, each holders of an “AFSL” granted under s 913B of the Act, and authorising them, as persons who carried on a financial services business in Australia within the meaning of s 911D, to provide financial services.

28. Under their respective AFSLs, WSAL and BTFM were authorised to provide “financial product advice”, including in relation to superannuation products, being “general advice” within the meaning of s 766B(4) of the Act. However, they were not authorised to provide financial product advice, including in relation to superannuation products, being “personal advice” within the meaning of s 766B(3) of the Act.

29. WSAL and BTFM are and were at all material times wholly-owned subsidiaries of Westpac Banking Corporation; members of the Westpac group of companies, which also includes BT Financial Group Pty Ltd (“BTFG”); and part of the BT Financial Group, being the wealth management division of the Westpac group of companies.

30. WSAL is the trustee of the Westpac MasterTrust – Superannuation Division (ABN 81 236 903 448) (“BT Business Account Fund”). BTFM is the trustee of the Retirement Wrap (ABN 39 827 542 991) (“BT Lifetime Account Fund”).

31. The BT Business Account Fund and BT Lifetime Account Fund are:

    (1)“regulated superannuation funds” for the purposes of s 19 of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SIS Act”);

    (2)“regulated superannuation funds” within the meaning of s 10 of the SIS Act; and

    (3)“superannuation entities” within the meaning of s 10 of the SIS Act.

32. A membership in the BT Business Account Fund or BT Lifetime Account Fund is:

    (1)a beneficial interest in a superannuation entity;

    (2)a “superannuation interest” within the meaning of s 10 of the SIS Act; and

    (3)a “financial product” within the meaning of Ch 7, Div 3 of the Act, including by reason of s 764A(1)(g) of the Act.

33. WSAL is the issuer of a superannuation product, referred to as the BT Business Super account (“BT Business Account”). The BT Business Account forms part of the BT Business Account Fund.

34. BTFM is the issuer of a superannuation product, referred to as the BT Lifetime Super – Employer Plan Account (“BT Lifetime Account”). The BT Lifetime Account forms part of the BT Lifetime Account Fund.

35. In providing financial product advice, including in relation to superannuation products, WSAL and BTFM were persons providing financial services within the meaning of s 766A of the Act.

    Westpac’s Super Activation Team

36. Westpac’s campaign to encourage rollovers into the BT funds involved a team of employees operated by one or more entities within the Westpac group and referred to at various times as the “Super Activation” or “Investor Solutions – Outbound” or “Investor Solutions” telephone unit (collectively, the “Super Activation Team”).

37. The parties agreed that, during the period 18 May 2013 to September 2016:

    (1)members of the Super Activation Team contacted and actually spoke with approximately 95,682 Westpac group customers;

    (2)approximately 31,506 customers were regarded by the Westpac group as having satisfied the following criteria:

    (a)during the call from the Super Activation Team, the customer stated they intended to:

    (i)roll over an external account into a superannuation account with the Westpac Group (“Westpac account”); or

    (ii)contribute additional funds into their Westpac account; and

    (b)funds were received into that customer’s Westpac account within 12 months of the customer’s statement of intention, noting that for “Corporate Superannuation customers”, funds over $1,000 were required to be received.

38. An amount of approximately $646,719,225.51 in FUM was generated during the period from 1 January 2013 to 16 September 2016 in respect of the customers who satisfied the criteria set out above.

39. BT accounts comprised some or all of the relevant Westpac accounts.

40. Super Activation Team members participated in the following campaigns that are the subject of this proceeding:

    (1)campaign titled “FY 14 02 Consolidation CAP FUP” which occurred between 2 April 2014 and 5 July 2014 (“Q2 campaign”); and

    (2)campaign titled “FY 14 04 Consolidation CAP FUP” which occurred between 1 October 2014 and 19 January 2015 (“Q4 campaign”).

41. The telephone calls that are the subject of this proceeding was made by six members of the Super Activation Team, referred to as Callers AA, BB, CC, DD, EE and FF.

42. The parties agreed that, at the time they made the telephone calls, the relevant Super Activation staff :

    (1)were employed by either Westpac or BTFG;

    (2)were acting as agents for BTFM when contacting members of the BT Lifetime Account;

    (3)were acting as agents for WSAL when contacting members of the BT Business Account;

    (4)were acting as agents for WSAL or BTFM and were engaging in conduct on behalf of either WSAL or BTFM as the case may be for the purposes of s 769B of the Act within the scope of their actual or apparent authority, such that:

    (a)the conduct of the relevant Super Activation staff is taken under s 769B(1) of the Act to be conduct by either WSAL or BTFM itself respectively; and

    (b)the state of mind of the relevant Super Activation staff is taken under s 769B(3) to be the state of mind of either WSAL or BTFM itself respectively;

    (5)were acting as representatives of either WSAL or BTFM respectively within the meaning of ss 910A and 960 of the Act; but

    (6)were at no stage authorised representatives of either WSAL or BTFM within the meaning of s 916A of the Act.

    The “marketing aspect” of Westpac’s customer calls

43. Westpac claimed that “[n]o customer could have been under any illusion that Westpac was anything other than self-interested in offering” the rollover service. Westpac argued that it was engaging in a sales exercise to encourage customers to roll over their super into their BT account. It acknowledged that the purpose of the campaign was to increase FUM.

44. Westpac contended that the marketing aspect of its calls, which I understood to mean, Westpac’s aim of winning business by the calls, could not have been lost on the objective observer. Whatever might be the objective interpretation, there was no evidence as to the actual understanding of any of the 15 customers about Westpac’s aims or how Westpac would benefit from the rollovers. No doubt that understanding may have been affected by the context in which the customer received an unsolicited call.

45. The evidence did not establish an understanding by any customer that Westpac was self-interestedly marketing its own products in making the calls. Why should a customer have appreciated that? It is significant that the customers received an unsolicited call, expressed as an exercise in assisting the customer and not as an exercise in promoting Westpac’s self-interest. There were obvious benefits to customers accruing from a consolidation of a customer’s super accounts (although not necessarily from a consolidation into their BT account). Why would a customer not reasonably think that Westpac was seeking to build its relationship with the customer, by engaging in an exercise in which the interests of the customer and Westpac were aligned? As Westpac itself argued, the calls were intended to build its existing relationships with customers by providing a free service. As Mr John Cannons, initially employed by BTFG as a “Sales Coach” of consultants in the Super Activation Team and then as the manager of the team, and who gave evidence on behalf of Westpac, said: “It’s good to have a conversation with a customer”. Mr Cannons also said that part of the reason for asking the customers questions was to “make sure they’re happy with BT”.

1. As appears from the transcripts set out below, what could not have been lost on any customer was that Westpac was seeking to convey an aim of providing assistance to the customer. That message was conveyed by the friendly tone of the calls, references to the calls as a “courtesy”, expressions of a desire to “help” and requests to understand what was important to the customer.

2. While I accept that a customer receiving a call from Westpac would assume that Westpac was making the call self-interestedly, I also consider it quite likely that the customer would believe that Westpac was making the call in the customer’s interests. Importantly, in the context of an unexpected telephone call, the customer would not necessarily be on guard and alert to the possibility that Westpac might be seeking to obtain a benefit which (to Westpac’s knowledge) may have an adverse outcome for the customer.

   Internal training on difference between general and personal advice.

3. ASIC noted that members of the Super Activation Team participated in “induction training”. This training included guidance about the difference between “general advice” and “personal advice”. ASIC submitted, and it was not substantially in dispute, that the training was to the effect of the PowerPoint presentation mentioned above. ASIC drew attention to the following statements included in the presentation:

   a.‘NOTE: If you provide/suggest or imply an opinion/recommendation in relation to the factual information you present to a client, then you are providing advice’ (page 1);

   b.‘The client needs to receive a general advice warning at the outset and at any time where you need to reinforce the nature of the engagement. However, be aware that providing a warning does not cover instances where you have provided personal advice (Implied or actual) to the client’ (page 2);

   c.‘General advice should NEVER be provided in such a way as to drive a particular outcome. Doing so is unlikely to provide a balanced view of the options available to the client and could in fact constitute personal advice i.e. the client need has been taken into consideration in recommending the preferred outcome’ (page 2);

   d.‘The client can volunteer personal information, yet the use of this information must be contained to what people generally consider. You should only use this information to provide more relevant general advice e.g. It is presented from what clients in a group or age bracket or life stage would generally consider’ (page 2);

   e.‘When comparing products, you cannot state or imply that one of the products better meets the client’s objectives, financial situation or needs e.g. you cannot state or imply that specific product features will be suitable for the client’ (page 2);

   f.At ‘Case Study 6’, a case study about a staff member calling a customer about consolidation of their superannuation, there is a warning against making statements which involve ‘a recommendation to essentially rollover the clients existing superannuation funds’ and a warning against making statements which ‘attempted to influence the clients [sic] decision to invest further into

4. ASIC also referred to the case study mentioned at [14] above.

   QM Framework and “social proofing”

5. ASIC contended that, notwithstanding Westpac’s internal training, Super Activation Team staff were also in fact trained and encouraged during the course of their employment to provide personal advice to customers. The basis for this contention was a document referred to as a “QM Framework” or “quality monitoring document”. ASIC argued that the QM Framework encouraged the Super Activation Team to provide advice to customers in a way which sought to use the client’s personal circumstances to drive an outcome of the customer rolling over their external superannuation accounts into their BT account.

6. The QM Framework was updated from time to time. ASIC referred to a version dated April 2014. Westpac did not suggest that it was unreasonable to accept that the relevant members of the Super Activation Team were instructed to follow this version of the QM Framework, or a document that was not materially different.

7. As Mr Cannons explained, the QM Framework was a document which set out risk compliance obligations for the Super Activation Team. It was first introduced to staff members during induction training and was used in a variety of ways to monitor the quality of calls and compliance. Mr Cannons’ evidence was that he coached callers to structure their calls based on the QM Framework.

8. What follows concerning the QM Framework was not substantially in dispute.

9. The QM Framework set out a four part structure for calls, under the following headings:

   (1)Open;

   (2)Gather;

   (3)Presenting; and

   (4)Objection Handling/Closing.

10. The “Open” phase was designed to put the customer in a positive, receptive frame of mind and to gain permission from the customer to ask them questions. For example, a staff member might introduce themselves and ask a question such as “So I can focus on what’s important to you, do you mind if I ask you a few questions?”

11. The “Gather” phase” involved asking the customer questions to “gather, uncover, clarify and develop” an understanding of the customer’s requirements. For example:

    (1)“What do you look for in a super fund? What’s important to you in a super fund? What do you care about in a super fund?” In the October 2013 version of the QM Framework, an equivalent question is framed: “A lot of customers that I speak to tell me that fees, investment options, online actions and insurance are important to them. Of these, which one of these is important to you?” According to the QM Framework, such questions were asked to “find out what’s important to the customer and draw the need and want to help you develop urgency to the close”. They were described as important to “‘help you present the features and benefits to the points of relevance to the customer. This will help you maintain rapport, ignite the thinking and emotions of the customer and uncover what will spur them to take action”.

    (2)“What do you see as the benefits of combining your super? Can you tell me a little bit more about that? Is (what the customer thinks the benefit of combining is) important to you?” In the October 2013 version of the QM Framework, an equivalent question is framed “When you said that you liked ... can you tell me a little more about that?” According to the QM Framework, such questions were asked to “find out more about the customer’s need and to build it through the use of questioning’. Such questions were said to be important to “encourage the customer to continue to talk to help you with your presentation & need what you are offering”.

    (3) “How much do you have in your super accounts?” How long have you been working for?” According to the QM Framework, this was important because the “information derived through this question is going to help you to prioritise your follow up according to value of consolidation, age and number of years the customer has been working”.

12. In the “Presenting” phase, the aim was to “conduct a persuasive, interactive presentation to the customer based on what the customer told you in your questioning”. This included:

    (1)“Social proofing” the customer with a statement such as “I understand where you are coming from & many customers are also in a similar situation”. According to the QM Framework, such a statement created a “space of comfort, assurance and confidence that other customers have had the same concerns and agreed to the same benefits”.

    (2)“Articulating the feature(s) as benefit(s)”. In the October 2013 version of the QM Framework, the equivalent description was written as “related the motivation/benefit back to what was picked up during the Gathering Requirements”. According to the QM Framework, this was done to “link the customer’s motivation to the features of the product / service that was found during your questioning”. It was said to be important “to create an emotional connection to how a service will benefit them rather than what the service provides”.

13. Mr Cannons gave evidence to the effect that “social proofing” is a sales and service technique, having the purpose of showing empathy to the customer and being intended to give the customer some comfort and assurance that they are in the same position as other customers. Mr Cannons agreed that, in this context, the purpose was to provide customers with a sense of assurance that their reasons for wanting to roll over are held by others, and that their aims are valid and reasonable.

14. Westpac submitted that the reference to experience of other customers underlined the fact that it was engaged in a marketing exercise and not an attempt to convey a judgment to the customer about what is in fact best for them. I do not agree. My reaction to the “social proofing” aspects of the calls was that they were incongruous: as a recipient of an unsolicited call from Westpac, why would I be interested in the opinions of other customers? It is probably reasonable to assume that “social proofing” is used because some customers are influenced by that technique. However, another likely interpretation of “social proofing” is that the caller was simply attempting to build rapport or to make conversation for some other reason.

15. Finally, the “Objection Handling/Closing” phase was aimed at overcoming any objections raised by the customer and seeking a “commitment for action that moves the customer closer to the sale”. This phase included:

    (1)Using all relevant information to overcome any customer objection. This included trying to “find out any underlying reasons that could hold the customer back from following the next steps”. The Super Activation staff member was to be scored “zero points” if they “accepted the customer’s objection without questioning further or using a strategy to overcome it”. In the October 2013 QM Framework, staff were to overcome the customer’s objection using “the important points taken from the call to create the connection between their needs and wants and their objections”.

    (2)Providing “clearly articulated next steps” to “provide direction to the customer to ensure the end outcome is achieved”.

    (3)“Effectively end[ing] the call with a powerful benefit based on the customers motivation / interest”, by “link[ing] the customer’s motivation using a relevant benefit after you demonstrate your advance”. This was said to be important because it will “help you build urgency for the service. Providing this linking statement at the end of the call can help leave a lasting need in the customer’s mind”.

16. As part of their ongoing training, the calls of the staff were reviewed by a “sales coach” and scored in accordance with a scoring system set out in the QM Framework. The staff attended one-on-one meetings with their “sales coach” approximately once per week to assess how closely they were following the QM Framework and how they might more closely follow its requirements.

17. ASIC noted that the QM Framework set out specific techniques for which staff were scored, including questioning techniques designed “to maintain rapport, to gather the right information, and to build desire in the customer”. For example, staff received points for:

    (1)Using “open questions” such as “what’s important to you?”. These were said to be important because they would:

    “obtain uninfluenced responses to allow you to begin to understand what’s important to the customer and help you through the sales process. Open questions are the key to unlocking every customer’s unique requirements. Aim to uncover their problems or needs so when you present, they will pay more attention”.

    (2)Using “leading” questions such as “What benefits do you see in combining your super?” These were asked because “[o]nce you’ve gathered bits of information derived from the open questions, the use of leading questions will narrow down to your customer’s need”. These were said to be important because they were “[g]ood for leading the customer in the direction you want them to go and finding out more specific information about their requirements”.

18. Westpac noted that a call would be classified as an “autofail” in circumstances which included where an operator:

    (1)did not expressly warn a customer at the start of the call that the information provided on the call was general in nature and did not take into account the customer’s needs or objectives;

    (2)failed the “personal advice” prohibitions;

    (3)did not refer a customer to appropriate advice channels if the customer asked certain questions; or

    (4)exerted undue pressure or influence on the customer.

19. When the relevant calls were made, members of the Super Activation Team were eligible for bonus payments. Approximately 15% of such payments were calculated by reference to scores that their calls were given under the QM Framework. Approximately 30% of any such bonus payment was calculated by reference to the FUM which the relevant staff member generated for Westpac on their calls. On the other hand, staff became ineligible for bonuses if they had a specified number of compliance “fails”.

20. In final submissions, ASIC sought several findings of fact, which generally did not appear to me to be controversial and I make them to the following extent:

    (1)Westpac had the QM Framework in place over an extended period and used it on campaigns that were aimed at encouraging customers to roll over their superannuation. The QM Framework was updated from time to time to take into account feedback from consultants, managers and coaching staff.

    (2)Staff in the Super Activation Team were trained and encouraged by coaches to follow the QM Framework.

    (3)Staff were marked and assessed based on the QM Framework and a substantial part of how their performance and any bonus was assessed was their ability to follow the QM Framework and their ability to generate FUM.

    (4)The calls to the 15 customers reflected the terms of the QM Framework to varying extents, including through opening by saying that they were calling about the relevant customer’s superannuation, as a “courtesy call” or to “help them potentially save on fees”, uncovering the personal motivations of the customer and then linking those motivations to influence the customer to roll over their external superannuation accounts into the customer’s BT account. The callers were encouraged to, and typically did, seek information about the customer’s personal circumstances.

    (5)Based on the transcripts of the various calls, some callers attempted to personalise the calls, listen to the customers and encourage the belief that they were being listened to and that their reasons for rolling over funds into their’ BT account were valid and reasonable. The callers attempted to use the information provided by the customers to inform what they said subsequently.

    (6)Based on the transcript of the various calls, staff apparently considered that they could seek to influence customers to roll over funds into their BT account by saying words to the effect that they “would potentially save on fees”.

    (7)There is no reason to think that any of the callers knew whether it was in the best interests of the customers to roll over their external accounts into the customer’s BT account.

21. Having made these findings, I do not generally consider it necessary to make findings by reference to ASIC’s lengthy “Evidence Table”. My factual findings concerning whether callers “considered” the objectives, financial situation and needs of customers are set out below.

22. ASIC contended that the evidence supported a finding that the Super Activation Team adopted their approach to calls regardless of whether or not it was beneficial to the customer, because they did not know whether or not it was in the interests of customers to roll over their external accounts. I do not accept that this is a fair reflection of the QM Framework, which encapsulated the team’s approach. As ASIC’s “Moneywise” website noted, consolidation of superannuation accounts is beneficial, at least to the extent that it reduces paperwork and makes it easier for the customer to keep track of the customer’s super. According to ASIC, there is also a financial benefit, namely, saving costs by paying only one set of fees. Thus, in my view, it is fair to say that the Super Activation Team did know that it was in the interests of customer to roll over their external accounts into a single account, although they did not know whether it was in their best interests to roll over the accounts into a BT account.

    LEGAL FRAMEWORK

    Relevant statutory provisions

23. Chapter 7 of the Act is entitled “Financial services and markets”. Section 760A sets out the main object of Chapter 7 as follows:

    The main object of this Chapter is to promote:

    (a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and

    (b)fairness, honesty and professionalism by those who provide financial services; and

    (c)       fair, orderly and transparent markets for financial products; and

    (d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.

24. Part 7.1 of Ch 7 contains definitions of key concepts and commonly occurring expressions in Ch 7. Division 3 of Pt 7.1 is entitled “What is a financial product?” As noted earlier, it is not in dispute that membership in the BT Business Account Fund or BT Lifetime Account Fund is a “financial product” within the meaning of the relevant statutory provisions.

25. Division 4 of Pt 7.1 is entitled “When does a person provide a financial service?” As it stood at the relevant time, Div 4 contained five provisions, headed as follows:

    766A   When does a person provide a financial service?

    766B   Meaning of financial product advice

    766C    Meaning of dealing

    766D   Meaning of makes a market for a financial product

    766E    Meaning of provide a custodial or depository service

26. By s 766A(1)(a), for the purposes of Chapter 7, and subject to s 766A(2)(a), a person provides a “financial service” if they provide “financial product advice”.

27. Section 766B provides:

    Meaning of financial product advice

    (1)For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

    (a)is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

    (b)could reasonably be regarded as being intended to have such an influence.

    (1A)However, subject to subsection (1B), the provision or giving of an exempt document or statement does not constitute the provision of financial product advice.

    (1B)Subsection (1A) does not apply for the purpose of determining whether a recommendation or statement of opinion made by an outside expert, or a report of such a recommendation or statement of opinion, that is included in an exempt document or statement is financial product advice provided by the outside expert.

    (2)There are 2 types of financial product advice: personal advice and general advice.

    (3)For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:

    (a)the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or

    (b)a reasonable person might expect the provider to have considered one or more of those matters.

    (4)For the purposes of this Chapter, general advice is financial product advice that is not personal advice.

1. As noted earlier, under their respective AFSLs, WSAL and BTFM were permitted to provide financial product advice that was “general advice” but not “personal advice”.

2. Part 7.6 of Ch 7 is entitled “Licensing of providers of financial services”. Division 3 of Pt 7.6 is entitled “Obligations of financial services licensees”. Division 3 sets out a series of “baseline” or minimum obligations on all holders of an AFSL – whether providing “financial product advice” or otherwise.

3. By s 912A(1), a financial services licences must:

   (a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and

   …

   (b)comply with the conditions on the licence; and

   (c)comply with the financial services laws; and

4. Part 7.7 of Ch 7 is entitled “Financial services disclosure”. Part 7.7 Div 2 is entitled “Person provided with financial service as retail client to be given a Financial Services Guide”. In respect of both the providers of “general advice” and ‘‘personal advice’’, Pt 7.7, Div 2 imposes a minimum disclosure obligation on providers in circumstances where financial services are being provided to “retail clients” (as defined in s 761G).

5. In respect of the providers of ‘‘personal advice” to retail clients (see s 944A), Pt 7.7, Div 3 imposes a number of additional obligations. In particular, by s 946A, the provider has an additional obligation of disclosure: to provide the client with a “Statement of Advice” which satisfies the requirements of Sub-Divs C and D of Pt 7.7, Div 3. These Sub-Divs impose a number of prescriptive requirements regarding what that advice must contain, including by s 947B:

   (1)information about the basis on which the advice is or was given;

   (2)information about any remuneration (including commission) or other benefits the providing entity or an employee of the providing entity is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice; and

   (3)information about: (i) any other interests, whether pecuniary or not and whether direct or indirect, of the providing entity or of any associate of the providing entity; and (ii) any associations or relationships between the providing entity or any associate of the providing entity and the issuers of any financial products; that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice.

6. In relation to the provision of “general advice”, s 949A requires the provider to:

   … warn the client that [inter alia]:

   (a)the advice has been prepared without taking account of the client’s objectives, financial situation or needs; and

   (b)because of that, the client should, before acting on the advice, consider the appropriateness of the advice, having regard to the client’s objectives, financial situation and needs …

7. Further, in relation to the provision of “personal advice” to a person as a retail client:

   (1)by s 961B(1), the provider must act in the best interests of the client;

   (2)by s 961G, the provider may only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied that duty under s 961B; and

   (3)by s 961J, in the case of a conflict, the provider must give priority to the client’s interests when giving the advice.

   Principles of statutory interpretation

8. Key principles of statutory construction identified by the parties as applicable in this case are that:

   (1)words in a statute must be considered in context, which context includes legislative history and extrinsic materials, but such materials cannot displace the clear meaning of the text: Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503, 519 at [39];

   (2)the construction of the text arrived at should have both internal logical consistency, and involve an overall harmonious interpretation: Independent Commission Against Corruption v Cunneen [2015] HCA 14; (2015) 256 CLR 1, 20-21 at [31] citing Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, 381-382 at [69]-[70];

   (3)while the task of statutory construction must begin with a consideration of the text itself, the meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision and the mischief it is seeking to remedy: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47]; and

   (4)the Court will also have regard to the consequences of a particular interpretation, and will prefer a construction that will avoid consequences which appear irrational or unjust: Legal Services Board v Gillespie-Jones [2013] HCA 35; (2013) 249 CLR 493 at [48]; Public Transport Commission (NSW) v J Murray- More (NSW) Pty Ltd [1975] HCA 28; (1975) 132 CLR 336 at 350.

   General observations

9. As ASIC contended, the definition of personal advice in s 766B(3) is fundamental to the legislative scheme regulating financial advice, as it demarcates the important boundary between “personal advice” and “general advice”: the former requires advice appropriate to the client and stricter obligations of disclosure and disinterestedness.

10. Both “general advice” and “personal advice” are types of ‘‘financial product advice”. Under s 766B(l), both types of advice are permitted to be subjectively or objectively intended to influence a person or persons in making a decision about, relevantly, “a particular financial product”. The fundamental distinction between the two types of advice is that personal advice is given or directed to a person “in circumstances where” the provider “has considered one or more of the person’s objectives, financial situation or needs”, or “a reasonable person might expect the provider to have considered one or more of those matters”. It is the subjective or objective consideration of the individual’s personal circumstances that distinguishes the two types of advice.

    Section 766B(1): “Recommendation or a statement of opinion”

11. The terms “recommendation” and “statement of opinion” in s 766B(1) have been interpreted broadly, and include an implicit recommendation or statement of opinion: Australian Securities and Investments Commission (ASIC) v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 (“Park Trent”) at [364]-[366].

12. In Park Trent, noting that dictionary definitions do not control the construction of a statutory provision, Sackville AJA set out the following at [364]:

    The dictionary definition of “recommendation” includes “anything that serves to recommend a person or thing or induce acceptance or favour”. The definitions of “recommend” include:

    1.to commend by favourable representations; present as worthy of confidence, acceptance, use etc.

    2.to represent or urge as advisable or expedient.

    The dictionary definition of “opinion” includes:

    1.        judgment or belief resting on grounds insufficient to produce certainty.

    …

    3.        the expression of a personal view, estimation or judgment.

13. As to implied recommendations and statements of opinion, his Honour continued at [365]:

    The construction of s 766B(l) must take into account that the language encompasses a recommendation or statement of opinion that is intended to influence a person in making a decision relating to a financial product or could reasonably be regarded as having such an influence. A person wishing to influence another person (the client) to make a decision relating to a financial product ... may do so in ways other than by express recommendations or explicit statements of opinion. Information or other material may be presented to the client in a form implying that the presenter favours or recommends a particular course of action without saying so explicitly. Similarly information or other material may be presented in a form that implies that the presenter’s view is that the contemplated course of action is likely to be beneficial to the client. The authorities have accepted that the statutory language should be given a broad interpretation. Specifically, they support the proposition that a person may provide information or present material in a way that implicitly makes a recommendation or states an opinion in relation to a financial product.

14. Sackville AJA found (at [370]-[389]) that in the course of its interactions with investors the company made statements recommending, both explicitly and implicitly, that investors invest in property using a self-managed superannuation fund. His Honour further found that statements of opinion were made that investing in properties through a self-managed superannuation fund was a sound investment strategy likely to produce strong returns in the medium to long term that the attendees at certain seminars should favourably consider establishing one.

15. Westpac contended that Trent Park is distinguishable from the present case because the bespoke analysis provided to individual investors in the former plainly represented an expression of opinion that the investment was appropriate for them.

16. In Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 90, Besanko J found that an online trading platform known as MetaTrader 4 provided trading analysis information, which could be construed as an expression of opinion that trading in a certain way, namely a way that makes use of the “trading indicators” made accessible by the platform (such as market trend, strength and volatility information), was likely to be profitable.

17. In Australian Securities and Investments Commission v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980; (2008) 169 FCR 522 (“Oxford Investments”), Heerey J found that the defendants made implied recommendations or statements of opinion that were intended to influence persons attending courses of instruction in making a decision in relation to share price index futures. The relevant statements “necessarily implied that [the defendants] held the opinion that application of the Methodology would enable the user to trade profitably” ([17]).

18. In Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1 (“Sydney Investment House Equities”), Hamilton J noted at [358] that, while there were no decisions directly on point as to what could be characterised as a recommendation or a statement of opinion, there were decisions that “endorse the taking of practical and substantive approach to legislative provisions of this type”.

19. At [359], Hamilton J found that the offer of a high (18%) interest rate (“we can give you an 18% interest rate”) and promise of a mortgage (“we can arrange a mortgage that will allow you to invest with us”) were enough to convey a recommendation to the addressee that the investment was advantageous. This finding was made in relation to the defendants’ property investment scheme, whereby investors were invited to make loans to two of the defendants of monies to be lent to property developers (which, as it turned out, were insolvent related entities).

20. Westpac argued that the reasoning in this case must be incorrect because it seems to suggest that drawing attention to any advantageous feature of a financial product would amount to conveying a recommendation for the purposes of the statute. They noted that the relevant defendant (an individual who controlled the companies concerned) was unrepresented and the judgment does not indicate that he offered a substantive response to ASIC’s contentions on this issue: see [344].

21. Applying Sackville AJA’s interpretation, the terms “recommendation” and “statement of opinion” are to be given a broad interpretation, consistent with their ordinary meaning. The legislature has singled out “recommendations” and “statements of opinion” (and reports of either those things) as the conduct that constitutes “financial product advice”, where the conduct satisfies one of the two limbs of s 766B(1). Thus, for any particular statement that satisfies one of those two limbs, that statement will not constitute “financial product advice” unless it is also, relevantly, a “recommendation” or a “statement of opinion”.

22. In this context, in my view, the expression “statement of opinion” is intended to exclude statements of fact from the meaning of “financial product advice”. This construction is consistent with the legislative scheme which is designed to enable confident and informed decision making, and to impose obligations on AFSL holders in relation to the provision of “financial product advice”. As a general proposition, it might be thought that consumers need to understand why a recommendation is made, or an opinion is expressed, but not why a statement of fact is articulated: the explanation for the latter is the existence of the fact itself. Thus, there is an obligation to give a “Statement of Advice” where personal advice is provided to a person as a retail client under Pt 7.7 Div 3. By s 946A(2), the Statement of Advice may be the means by which the advice is provided, or a separate record of the advice. By s 947B(2)(b), a Statement of Advice must include information about the basis on which the advice is or was given.

23. However, as the law of evidence reveals, the distinction between fact and opinion is not always obvious: see, for example, La Trobe Capital & Mortgage Corporation Limited v Hay Property Consultants Pty Ltd [2011] FCAFC 4; (2011) 190 FCR 299 at [43] and [44]. In that context, an opinion is commonly taken to mean “an inference from observed and communicable data”: Lithgow City Council v Jackson [2011] HCA 36; (2011) 244 CLR 352 (“Lithgow City Council”) at [10], citing Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75. As explained in Dyson Heydon’s Cross on Evidence, 10^th ed, at [2001], the origins of rules concerning opinion evidence reflect a concern that opinion had an uncertain or unreliable basis.

24. In Lithgow City Council, the High Court considered the nature of a statement made by ambulance officers. The appellant sought to distinguish between an opinion and a statement which merely raised a question, arguing that the relevant representation did no more than raise a question as to a fact (that the respondent had fallen 1.5 metres onto concrete), or speculate whether this was the fact, or raise as a possibility that fact. In dealing with a contention that the relevant representation was an inference from observed and communicable data (and therefore an opinion), French CJ, Heydon and Bell JJ (Gummow and Crennan JJ agreeing) noted the range of possible bases for a representation, as follows (at [28]):

    What the ambulance officers did observe and could have observed could have caused them to draw an inference from the observations. But the present question is whether they actually did do so, not whether they could have. The question turns on the form of what they said in the context in which they were speaking. That is because what it means to raise a query about something can vary with the context. “I query whether that is so” can mean “That is probably so, though I am not sure” or “That may well be so, though I am not sure”. But it can also mean: “I raise a question about whether it is so”, or “I speculate whether it is so”, or “I raise the possibility that it is not so”, or “I doubt that that is so”. It can even mean “I deny that that is so”.

25. At [37] and [38], the High Court rejected a finding of the Court of Appeal of the Supreme Court of New South Wales that the relevant statement was “an opinion, in the sense of an inference drawn, that there was a question” whether the respondent had fallen 1.5 metres onto concrete. Their Honours also rejected the appellant’s submission that to characterise the impugned representation as an opinion that there was a question whether there had been a 1.5 metre fall was to render it inadmissible, saying (at [38]):

    The ambulance officers’ records are so shrouded in obscurity about what data they observed and suggest so great an unlikelihood that that data could support, or were seen as pointing to, any definitive inference that it is not possible to find on the balance of probabilities what the impugned representation was stating. It is therefore not possible positively to find that it stated an opinion.

26. In the context of s 766B(1), a “practical and substantive” approach would support an interpretation of the words “statement of opinion” to exclude statements of fact, being statements that are not based upon inference, and statements that do not involve any definitive inference (such as speculation). A statement of possibility may be made on the basis of inference and may therefore be a “statement of opinion”. It may be necessary to understand surrounding context to determine whether a statement is the product of inference so as to be a “statement of opinion” within the meaning of s 766B(1).

27. For example, the bare statement “If you buy this product, you could be better off” may be the expression of an inference based on a fact or facts about the consumer’s financial position (or other facts), or it may be based on nothing more than the logic that purchase of the product may or may not lead to the consumer being better off. In my view, where there is no evidence that the statement is an inference based on other facts, there is no basis for a conclusion that the statement is a “statement of opinion”.

28. It is not necessary for me to determine whether the findings in Sydney Investment House Equities were wrong: the issue in this case is whether various statements made by the callers were recommendations or statements of opinion, or implied recommendations or statements of opinion.

29. Westpac accepted, and I agree, that an implicit statement that the provider favours or commends a particular course of action without saying so in terms, or that the provider’s view is that the contemplated course of action is likely to be beneficial to the client, is capable of amounting to “financial product advice”. A recommendation or a statement of opinion may be made implicitly where information or other material is presented in a form that implies that the presenter’s view is that the contemplated course of action is likely to be beneficial to the client.

30. Westpac argued that a recommendation or statement of opinion could not comprise “any … sales message or expression of enthusiasm…in an interaction with a customer”. I do not agree. The character of words as “sales message” or “expression of enthusiasm” does not answer whether those words are a “recommendation” or a “statement of opinion”: it is necessary to consider the content of the words to determine whether a recommendation or statement of opinion is made.

31. As ASIC observed, it was the overlap between the concept of sales and advice that was one of the key concerns addressed by the Parliamentary Joint Committee on Corporations and Financial Services in its November 2009 Report – the precursor to the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth). The Committee noted a key focus as being the “sales-advice conflict” and “the effect of sales imperatives on the quality of financial advice” in the financial sector (at [5.1]).

32. The defendants submitted that the reference to a “report” in s 766B(1) suggests a degree of formality, and is consistent with the natural sense of the terms “recommendation” and “statement of opinion” as involving advice as such. They argued that, taken together, these terms import some application of estimation and judgment. The same point was said to emerge from the use of the word “advice” in the defined term “financial product advice”, bearing in mind that the ordinary English meaning of a word defined in a statute may properly influence the interpretation of the definition: Rennie Golledge Pty Ltd v Ballard [2012] NSWCA 376; (2012) 82 NSWLR 231 at [129].

1. However, in my view, those matters would not lead a reasonable person to have expected the callers to have considered one or more of the customers’ objectives and financial situation. A reasonable person would not expect consideration on the basis that the person could identify reasons that might have motivated Westpac to engage in such consideration in the face of strong indicators that the consideration was unlikely to have occurred.

2. The circumstance that the calls were expressly made in relation to particular accounts is a matter that would tend to suggest consideration of one or more of the customer’s objectives and financial situation. However, that is a weak factor in the face of the other circumstances identified above which point in the opposite direction.

3. Accordingly, I conclude that none of the “financial product advice” was given in circumstances where a reasonable person might expect the provider of the advice to have considered one or more of the person’s objectives, financial situation and needs within the meaning of s 766B(3).

   CONCLUSIONS REGARDING “PERSONAL ADVICE”

4. Having concluded that Westpac did not give “personal advice” within the meaning of 766B(3), there was no requirement to comply with either s 946A or s 961K(2) of the Act. Further, there was no breach of conditions of the relevant AFSLs by providing personal financial product advice in contravention of s 912A(1)(b).

   FAILURE TO ENSURE SERVICES PROVIDED “EFFICIENTLY, HONESTLY AND FAIRLY”

5. Section 912A(1)(a) provides that financial services licensees must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly.

6. ASIC’s case was that Westpac failed to do all things necessary to ensure that the financial services provided by them through the Super Activation Team, comprising the provision of “financial product advice”, were provided “honestly, efficiently and fairly” within the meaning of s 912A(1), by adopting and implementing the QM Framework, through training, encouraging and directing Super Activation staff to follow the QM Framework in their calls with customers generally and in the Q2 and Q4 campaigns.

7. In particular, ASIC alleged that by adopting and implementing the QM Framework “through training, encouraging and directing Super Activation staff to follow the QM Framework in their calls with customers generally” and in the Q2 and Q4 campaigns specifically, Westpac:

   (1)adopted and implemented a structure and approach to calls with customers in the Q2 and Q4 campaigns that was liable to lead to the Super Activation staff:

   (a)providing personal advice to customers to rollover their external accounts into their BT account; and/or

   (b)doing so without taking the following types of steps:

   (i)Failed to adequately identify the objectives, financial situation and needs of the customer that would reasonably be considered as relevant to advice on rolling over superannuation accounts, before recommending that the customer roll over any external accounts into their BT account;

   (ii)Failed to conduct a reasonable investigation into the financial products that might achieve the customer’s objectives;

   (iii)Failed to consider the merits of the customer rolling their superannuation account into an existing external account or a superannuation product in which they did not have an account, rather than their BT account;

   (iv)Failed to consider or compare the respective features and benefits of the superannuation accounts that were the subject of the rollover;

   (v)Failed to make reasonable inquiries to obtain complete and accurate information where information was incomplete, including as to the insurance needs and existing insurance coverage of the customer;

   (vi)Failed to assess whether they had the necessary expertise to provide the advice and decline to provide the advice.

   (2)Adopted and implemented that structure and approach:

   (a)Regardless of the appropriateness of the BT account to the customer, including whether that step involved them rolling out of one or more external accounts which were better suited to the customer than their BT account; and

   (b)Without having any or sufficient details of the customer’s external accounts;

   (3)Adopted and implemented that structure and approach for the primary purpose and objective of generating an increase in FUM for WSAL, BTFM and or the Westpac Group and, in doing so prefer their own interests and the interests of WSAL, BTFM and or the Westpac Group in generating FUM to the interests of their customers.

8. Westpac contended that the evidence showed staff were specifically trained about the significance of the distinction between personal advice and general advice; the QM Framework explicitly recognised that distinction and recognised the need to abide by it as a “compliance” requirement; and Westpac’s compliance monitoring was directed at, inter alia, identifying infractions of the prohibition against giving personal advice. If, despite these safeguards, personal advice was in fact given because the QM Framework was followed, it was despite Westpac’s well-intentioned efforts to avoid that outcome. Westpac argued that this facts hardly connoted the serious conduct that would display a lack of sound ethical values and judgment of the kind referred to in Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (In Liq) [2012] FCA 414; (2012) 88 ACSR 206 (“Camelot”).

   Findings of fact

9. The QM Framework was used by Westpac over an extended period, including the period April to December 2014. It was used to train members of the Super Activation team, as well as to monitor the quality of calls and compliance by the Super Activation Team as part of Westpac’s campaign to increase FUM by rollovers of external accounts held by existing customers into their BT accounts. The callers to the 15 customers were coached to structure their calls based on the QM Framework and the transcripts of the calls broadly reflect that coaching although, as Mr McHugh SC observed, the “social proofing” element of the QM Framework was not used in every instance.

10. Having regard to my findings above concerning the lack of consideration given by callers to the objectives or financial situation of the relevant customers, I do not accept that this system was liable to lead Super Activation Team to provide “personal advice” to customers to accept the rollover service. In particular, as I have found earlier, the QM Framework did not require or encourage consideration of those matters. Further, having found that the circumstances of the calls the subject of this proceeding would not lead a reasonable person to expect that there was consideration of such matters, and accepting that those calls appear broadly to have followed the QM Framework, I do not accept that the system was liable to lead the Super Activation Team to provide “personal advice” within the meaning of s 766B(3)(b) of the Act.

11. There is no dispute that the implementation of the QM Framework was inconsistent with the Super Activation Team taking steps designed to determine whether the rollover service was in the best interests of the customers. The premise of Westpac’s defence was that those types of steps were not necessary in the context of the particular campaign and, in particular, the features that were said to render it a naked exercise in marketing, so that no reasonable consumer could have been led to think that Westpac was recommending the rollover service on the basis that it was in the customers’ best interests.

12. Similarly, there is no dispute that Westpac’s approach involved encouraging its customers to accept the rollover service on the basis of the particular “selling points” of manageability and potentially saving on fees. Except to that extent, Westpac did not have regard to the appropriateness of the BT account for the individual customers, including whether the rollover service might cause them to roll out of one or more external accounts which were, as a matter of fact, better suited to the customer than the BT account.

13. ASIC’s “Particulars of Claim” did not identify the details of customers’ external accounts that Westpac was said to have lacked. Accordingly, I do not find that Westpac’s system was implemented without having any or sufficient details of the customers’ external accounts.

14. Finally, it was not disputed that the QM Framework was adopted and implemented with the objective of generating an increase in FUM.

15. Westpac contended that its objective of increasing FUM was both obvious and irrelevant, saying:

    Westpac’s consultants never held themselves out as financial advisors purporting to act in customers’ best interests; nor did its consultants give any impression that they were aware of, or wished to understand, the customer’s relevant personal circumstances. The overwhelming impression one gets from reading the correspondence and reviewing the telephone calls is that a marketing message in being conveyed; that is, favourable aspects of the rollover service offers by Westpac are emphasised and reinforced. No customer could have been under any illusion that Westpac was anything other than self-interested in offering that service.

16. Based on this contention I infer that, in implementing the QM Framework, Westpac focussed on its own interests and did not seek to act in the best interests of its customers.

    Legal framework

17. Westpac did not take issue with ASIC’s explanation of the legal framework. The following explanation is based on ASIC’s submissions.

18. Section 912A(l)(a) was introduced by the Financial Services Reform Act 2001 (Cth) with the introduction of the Act. Under the original draft of the Financial Services Reform Bill 2001 (Cth), the provision required only that financial services be provided “competently and honestly”. This wording was replaced with the wording “efficiently, honestly and fairly” in order to reflect the equivalent provision in the predecessor to the Act, the Corporations Law (Cth). The Supplementary Memorandum to the Financial Services Reform Bill 2001 (Cth) stated as follows (at [3.74]):

    Paragraph 912A(a) currently obliges licensees to provide services ‘competently and honestly’. It is proposed to amend this paragraph to require licensees to provide services ‘efficiently, honestly and fairly’ (in line with the wording of the licensing obligations in Parts 7.3 and 8.3 of the current Corporations Law) (see proposed item 64).

19. Part 7.3 of the Corporations Law (headed “Participants in the Securities Industry’’) used the term “efficiently, honestly and fairly” as a basis for ASIC to refuse to grant a licence, revoke a licence or ban a person from holding a licence. In particular:

    (a)sections 783(2)(e) and 784(2)(d) provided that ASIC could grant a licence provided, inter alia, that “it had no reason to believe that the [person/applicant] will not perform those duties efficiently, honestly and fairly”;

    (b)section 826(1)(j) provided that ASIC may revoke a licence if the commission “has reason to believe that the licensee has not performed efficiently, honestly and fairly the duties of a holder of a dealers licence or an investment advisers licence, as the case requires”; and

    (c) sections 829(f) and (g) provided that ASIC may make a banning order against a person if ASIC “has reason to believe that he or she [has not performed or will not perform] efficiently, honestly and fairly the duties of (i) a representative of a dealer; or (ii) a representative of an investment advisor”.

20. Part 8.3 of the Corporations Law provided similar provisions for futures brokers and futures advisors.

21. The term in the Corporations Law appears to have had its origin in s 60 of the Security Industry (New South Wales) Code (“NSW Code”). Section 60 enabled the National Companies and Securities Commission to revoke a dealer’s licence if the Commission had reason to believe a licence holder “has not performed the duties of a holder of such a licence efficiently, honestly and fairly”.

22. In Story v National Companies and Securities Commission (1988) 13 NSWLR 661 (“Story”), Young J considered the meaning of the phrase “efficiently, honestly and fairly” in the context of the NSW Code. Story was a stockbroker who had started following the activities of a company called Claremont Petroleum NL. In a memorandum to a prospective purchaser of the company, Story represented that there was a new issue in the works and stated that there was “[a]nother active bidder in the wings” when in fact there was not.

23. Young J held, at 670 – 671, that the term was introduced deliberately to replace its predecessor – a “fit and proper person” test – and so should not be construed in the same way as a fit and proper purpose test. His Honour held that there were three “clues” to interpreting the term:

    (1)the provision is obviously designed to protect the public;

    (2)the conduct being looked to is something that goes to the performance of the duties of the licence holder; and

    (3)the fact that the Commission could have regard to a contravention under s 65A(l), meant that, in appropriate cases, it may be that one serious offence would warrant a conclusion that a licensee had not performed his duties efficiently, honestly and fairly (i.e., in contrast to many disciplinary matters where there is an isolated departure from proper professional standards).

24. His Honour concluded, at 672, that the term:

    …must be read as a compendious indication meaning a person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.

25. On the facts of the case, at 684 Young J found that there was no other active bidder at the time, and Story would have known this. On those facts, at 685, Young J found that the misrepresentation that there was another active bidder fell short of the level of efficiency reasonably expected of a dealer in carrying out his functions under the Act.

26. In R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) [1989] SASC 1941; (1989) 1 ACSR 93 (“R J Elrington”), the Supreme Court of South Australia considered the equivalent provision under the Companies Code (SA). The defendant breached the conditions of its licence by giving investment advice in relation to securities of an associated company. The defendant did so “carelessly” acting on advice from another director that he could give such advice if he did so in his private capacity.

27. At 110, Bollen J decided that “the word ‘honestly’ may comprehend conduct which is not criminal but which is morally wrong in the commercial sense” and that “[i]t comprehends conduct which is not straightforward” and “may comprehend such conduct viewed objectively”. Despite there being no dishonesty, Bollen J concluded that the conduct amounted to “a very serious breach of the conditions of the licence and of the statutory obligation to behave ‘efficiently, honestly and fairly’”.

28. In Camelot at [69]-[70], Foster J accepted the following propositions concerning the meaning of s 912A(1)(a), based on authorities including Story and R J Elrington:

    (1)The words “efficiently, honestly and fairly” must be read as a compendious indication meaning a person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.

    (2)The words “efficiently, honestly and fairly” connote a requirement of competence in providing advice and in complying with relevant statutory obligations. They also connote an element not just of even handedness in dealing with clients but a less readily defined concept of sound ethical values and judgment in matters relevant to a client’s affairs.

    (3)The word “efficient” refers to a person who performs his duties efficiently, meaning the person is adequate in performance, produces the desired effect, is capable, competent and adequate. Inefficiency may be established by demonstrating that the performance of a licensee’s functions falls short of the reasonable standard of performance by a dealer that the public is entitled to expect.

    (4)It is not necessary to establish dishonesty in the criminal sense. The word “honestly” may comprehend conduct which is not criminal but which is morally wrong in the commercial sense.

    (5)The word “honestly” when used in conjunction with the word “fairly” tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound.

29. In Camelot, a breach was established by the respondent inducing clients to trade in options in an endeavour to secure excessive brokerage commissions (at [71]-[74]). The breach was established even though ASIC did not allege fraud or even a reckless disregard of the client’s rights; it was sufficient that Camelot Derivatives Pty Ltd was at least aware of the likely and actual impact that the commissions would have had on the clients’ trading outcomes (at [72]).

30. In Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209 at [673]-[674], Edelman J stated:

    Although ASIC has not proved that the services were not provided honestly, the contraventions ... were sufficiently serious departures from reasonable standards of performance of advice that they involved a failure to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly.

    This approach to “efficiently, honestly and fairly”, which treats the expression as including an assessment of reasonable expectations of performance and reasonable standards of performance, is consistent with the decision in [Camelot].

31. In Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liq) [2017] FCA 497 at [191], Beach J stated:

    The “efficiently, honestly and fairly” standard is applied as a single, composite concept, rather than three discrete behavioural norms. The following principles are not in doubt (see [Camelot] at [69] and [70] per Foster J). First, the words “efficiently, honestly and fairly” entail that a person must go about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty. Second, the phrase connotes a requirement of competency in providing advice and in complying with relevant statutory obligations. Third, the word “efficient” entails that the person is adequate in performance and is competent. Fourth, the concept of honesty is looked at through the lens of commercial morality rather than through the lens of the criminal law.

32. Finally, ASIC referred to the Administrative Appeals Tribunal decision in Re Hres and Australian Securities and Investments Commission [2008] AATA 707; (2008) 105 ALD 124. Mr Hres was a financial securities advisor for AMP Financial Planning Pty Ltd. An associate of Mr Hres, Robert Orehek, was the principal director and shareholder of a property development company, Norton Investments Pty Ltd. Mr Orehek offered to pay Mr Hres a 3% commission on loan funds provided by any lenders referred by Mr Hres. Despite Mr Hres being precluded from advising about competing products in his role for AMP, between 2000 and 2002, Mr Hres referred around 36 lenders to Orehek with the resulting loans totalling $2.64 million.

33. ASIC noted that the Tribunal rejected a defence that Mr Hres was not referring clients because he had expressly disclaimed such behaviour in the relevant conversations, reasoning as follows (at [239]):

    There may be cases where a person who is a securities adviser acts exclusively in his personal capacity. But, as is shown by the circumstances addressed in RJ Elrington and Foster; that hypothetical possibility is likely to be readily confounded where the adviser deals with persons with whom he has an established relationship as an adviser. Where that relationship exists, it would confound the effect of the statutory licensing requirements and conditions, no less than the requirement to have a reasonable basis for recommendations, if the adviser could merely, and with impunity, “refer” clients directly to the investment target. The confounding involved is patent in the present case. Mr Hres recognised that his proper authority precluded him from providing any clients with explicit advice about the Orehek loans. As a matter of form, he disclaimed any advice but, as a matter of substance, he nevertheless encouraged people who had consulted him to go and deal directly with Mr Orehek. Even if, as Mr Hres contended, he sometimes referred clients to other developers in addition to Mr Orehek, the propriety of his conduct would have been no better. There is a risk of a fundamental and unacceptable contradiction between disclaiming advice in relation to dealings of a particular kind and, at the same time referring clients to the particular entities that are likely to promote those same kinds of dealings with the client. That risk can only really be safely and predictably avoided by confining referrals in connection with securities to other appropriately licensed and qualified advisers.

1. Westpac argued that the cases indicate that a level of seriousness must be demonstrated, such as “sufficiently serious departures from reasonable standards of performance of advice” (as in Cassimatis) or matters from which the Court could conclude an absence of competence or a lack of “sound ethical values”.

2. Westpac contended that the level of seriousness necessary to establish a breach of s 912A(1)(a) is not established.

   Application of legal framework

3. ASIC identified four matters in support of a finding of contravention of s 912A(1)(a). Two of those matters were premised on the propositions, rejected earlier in these reasons, that use of the QM Framework was liable to lead Super Activation Team members to provide “personal advice” and that the Super Activation Team members did in fact provide “personal advice” in the implementation of the QM Framework.

4. The third matter was that, by the application of the QM Framework, customers were or may have been influenced and advised to accept the rollover service in a manner which took into account limited information about their personal circumstances and which gave no consideration as to whether there was another course of action better suited to the customer.

5. There is no serious doubt that the QM Framework encouraged the Super Activation Team to influence customers and advise them to accept the rollover service in a telephone conversation which involved limited identification of their personal circumstances and which did not involve consideration of whether there was another course of action better suited to the customer. There was no evidence of whether the customers took into account other information about their personal circumstances, except the calls themselves. For example, the transcript of the call to customer 8 showed that his acceptance of the rollover service was based in part on an earlier decision that the rollover should not include his MLC fund.

6. The fourth matter was that the implementation of the QM Framework was for the primary purpose and objective of generating an increase in FUM. As explained above, Westpac accepted that this was its objective.

7. I accept that the QM Framework had regard to the distinction between personal and general advice, and recognised the need to ensure that callers did not provide personal advice. I also accept that the implementation of the QM Framework involved significant compliance monitoring.

8. I also recognise that ASIC did not bring a case that customers were misled by the callers from the Super Activation Team, or that the implementation of the QM Framework involved misleading or deceptive conduct within the meaning of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (and related provisions). ASIC did not allege dishonesty or fraud in the implementation of the QM Framework.

9. Westpac noted that customers were not told that their fees would be lower or that the rollover service was appropriate for their particular circumstances. Westpac also noted that there was no suggestion that any of the 15 customers suffered any detriment because of the advice they received.

10. In particular, Westpac contended that the most obvious risk, loss of insurance, was unlikely to have come to pass given the clarity with which all customers were warned about this particular risk and the fact that such a warning is specifically required by the QM Framework.

11. Westpac again emphasised the marketing nature of its exercise and repeated the claim that no customer could have been under any illusion that Westpac was anything other than self-interested in offering the rollover service.

12. Westpac cautioned against treating the calls considered in this judgment as indicative of systematic wrongdoing of the kind that would amount to a contravention of s 912A(1)(a).

13. Finally, Westpac contended that, given its apparently well-intentioned efforts to avoid giving personal advice, if such advice was given, the facts hardly connoted the serious conduct that would display a lack of sound ethical values and judgment of the kind referred to in Camelot.

14. The implementation of the QM Framework should be understood in the context of Westpac’s knowledge and beliefs concerning the campaign, namely:

    (1)Westpac held the view that the Super Activation Team callers should not respond substantively to the customer’s question whether the consultant would recommend the rollover service in their case, because the answer to that question would require personal advice and consideration of issues such as whether the customer would have to pay any termination fees moving from existing funds, whether the customer would lose any insurance benefits, whether the BT account has all the services wanted by the customer and whether the customer’s employer could contribute to the BT fund.

    (2)Thus, Westpac knew that there was an asymmetry between its approach in relation to a customer who asked the question “Should I accept the rollover service” and the customers to whom Westpac made the recommendation “You should accept the rollover service”.

    (3)In conducting the campaign, Westpac did not know and did not seek to know all matters relevant to whether it was in the customers’ best interests to accept the recommendation. As a corollary, Westpac did not know whether the recommendations were in the customers’ best interests.

    (4)Westpac did not know whether the customers that it called had considered all significant issues relevant to whether it was in their customer’s best interests to roll over external accounts into their customer’s BT account, or even whether they were cognisant of those issues.

15. Having considered the matters set out above, I am persuaded that the implementation of the QM Framework in the cases of the 15 customers the subject of the proceeding, and more generally in connection with its campaign to encourage customers to accept the rollover service, involved a failure on the part of Westpac to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly for the following reasons.

16. Notwithstanding the state of knowledge that I have identified above, 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.

17. 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.

18. 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.

19. 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.

20. 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.

    FAILURE TO ACT IN THE BEST INTERESTS OF THE CUSTOMER

21. In case I am wrong in my finding that Westpac did not provide “personal advice” to the 15 customers, I have considered whether there was a contravention of s 961K(2) on the assumption that the “financial product advice” identified above was “personal advice”.

22. Section 961B(1) provides that the advice provider must act in the best interests of the client in relation to the advice. Section 961B(2) provides that the provider satisfies the duty in s 961B(1) if the provider proves that it has done each of seven matters tending to demonstrate that the advice provider has acted in the client’s best interests in the provision of the relevant advice.

23. Section 961K(2), which is a civil penalty provision provides, relevantly, that a financial services licensee contravenes s 961K(2) if a representative of the licensee contravenes s 961B and the licensee is the responsible licensee in relation to that contravention.

24. In Australian Securities and Investments Commission, in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345; 122 ACSR 47, Moshinsky J noted, at [17], that s 961B(2) may be treated as providing a “safe harbour” for providers accused of breaching the best interest duty, so that, if the provider can prove that he or she has done each of the seven things in s 961B(2), he or she will have satisfied the best interests duty. However, his Honour noted, at [18], ASIC accepted that a person may be able to satisfy the best interests duty in s 961B(1) even though they do not fall within the “safe harbour” of s 961B(2).

25. Westpac did not attempt to invoke s 961B(2).

26. ASIC’s case was that there was a contravention of s 961B(1) because the customers did not receive that which they would have received from a personal adviser in relation to the advice, in that Westpac:

    (1)failed to adequately identify the objectives, financial situation and needs of the customer that would reasonably be considered as relevant to advice on rolling over superannuation accounts, before recommending that the customer roll over any external accounts into their BT account;

    (2)failed to conduct a reasonable investigation into the financial products that might achieve the customer’s objectives;

    (3)failed to consider the merits of the customer rolling their superannuation account into an existing external account or a superannuation product in which they did not have an account, rather than their BT account;

    (4)failed to consider or compare the respective features and benefits of the superannuation accounts that were the subject of the rollover;

    (5)failed to make reasonable inquiries to obtain complete and accurate information where information was incomplete, including as to the insurance needs and existing insurance coverage of the customer;

    (6)failed to assess whether they had the necessary expertise to provide the advice and decline to provide the advice; and

    (7)may well have advised the customer to roll out of external accounts which were better suited to the customer’s personal objectives, financial situation and needs that their BT accounts.

27. Westpac denied any breach of s 961B(1), on the following bases:

    (1)ASIC did not alleged, or attempt to prove, that in any one of the 15 relevant instances, the customer would have been better served by not rolling over their superannuation into their BT account.

    (2)The two particular risks of a rollover to which ASIC draws attention (that client might not save on fees, and insurances might be cancelled) are risks of which customers were made specifically aware before deciding to roll over their super.

    (3)The particular selling points which were drawn to customers’ attention in every case were manageability and potentially saving on fees. Those benefits were undoubtedly true and ASIC did not suggest that anything that was said to customers was either wrong or misleading.

    (4)The substance of the interactions between the callers and the customers essentially involved Westpac offering to existing customers the rollover service, on the basis of the selling points of manageability and potentially saving on fees. Westpac did not purport to know all matters that might be relevant to the customer’s personal situation. No other reasonable customer would think otherwise. The fact that Westpac was engaged in a marketing exercise is highly relevant to an assessment of the best interests of clients in relation to the advice. It does not follow that simply because s 961B(1) is engaged, Westpac was required to act as if it was taking potentially relevant features of the client’s personal circumstances into account in determining what marketing message to convey when that is not what it purported to do.

28. In response, ASIC made the following arguments:

    (1)To establish a contravention, ASIC is not required to establish that any of the customers have in fact suffered loss. It is sufficient that the Court can be comfortably satisfied that by having a rollover effected irrespective of whether it was in the customer’s interests, some customers will have been worse off by effecting a rollover (for example by ending up paying more fees, or ending up in a more poorly performing fund, or by leaving the customer with less favourable terms). That customers may have lost important and irrecoverable benefits is not mere “idle supposition” but an inevitable possibility.

    (2)In the absence of a proper identification of the customer’s circumstances, recommendations or opinions to the effect that the customer “could potentially save on fees” and that “insurances might be cancelled” could have encouraged customers to act against their own interests. The customer may, for example, lose benefits such as more favourable insurance or benefits under a defined benefits scheme.

    (3)It may be correct to say that, at least in the abstract and speaking generally, having one superannuation account may be easier to manage and may lead to the payment of less fees than having multiple superannuation accounts. What may not be correct is to say that, in respect of a particular customer who, for example, has the personal objective of saving on fees, that the customer’s objective will be best achieved by a rollover into a BT Account rather than some other account.

    (4)Westpac again seeks to make a submission that is a variant on the argument that it was the case – and it would have been apparent to the customer – that the caller was not taking into account “the whole” of the customer’s circumstances.

29. Broadly, I accept that where advice is “personal advice” within the meaning of the Act, there is likely to be a failure to act in the client’s best interests in relation to the advice if the provider fails to comply with the Act’s requirements for the provision of “personal advice”. ASIC did not demonstrate that the six activities said to have been omitted (items (1) to (6) at [454] above) would have been necessary to comply with those requirements. However, I accept that doing the things that were omitted would have placed Westpac in a position to give the customers fully informed advice about whether to accept the rollover service and would have involved acting in the customers’ best interests in relation to the advice.

30. I also accept that Westpac may well have advised customers to roll out of external accounts which were better suited to the customer’s personal objectives, financial situation and needs than their BT accounts. As Westpac noted, there was no evidence one way or another.

31. Contrary to Westpac’s submissions, I do not accept that Westpac’s use of the word “potentially” in relation to saving of fees can be characterised as an identification of a risk of a rollover. Rather, in my view, it is a statement of possibility. I also do not accept that, in the context of an unsolicited call, a customer can reasonably be expected to have been alive to the nuance that the caller was speaking about possible but not certain saving of fees. Another interpretation might have been that the word “potentially” was directed to the fact that fees would be saved in the future.

32. Further, I have no difficulty accepting ASIC’s submission that the language of Westpac’s callers, and particularly the references to “potentially saving on fees” could have encouraged customers to act against their own interests.

33. I accept Westpac’s submission that the particular selling points that it identified were true benefits of the rollover service, and I acknowledge that ASIC did not suggest that anything that was said to customers was dishonest.

34. Westpac’s final point assumes its entitlement to engage in a marketing exercise of the kind that it undertook. It also relies upon its asserted position, that its marketing exercise was nakedly self-interested, so that it acted in the customer’s best interests without taking steps that would otherwise be required.

35. On the assumption that Westpac’s “financial product advice” was “personal advice”, I am 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. This conclusion is supported by Westpac’s view, recorded in the case study set out at [14] of what would be  involved in providing proper personal advice to a customer who sought advice about whether to consolidate external funds into their BT account. There is no difference in the client’s best interests that depends upon whether advice was volunteered in a marketing campaign, or the subject of an express request for advice.

36. Accordingly, if I had found that Westpac gave “personal advice”, I would have concluded that it contravened s 961B(1) in giving that advice.

    CONCLUSION

37. I am satisfied that Westpac contravened s 912A(1)(a) of the Act. I will make declarations to that effect. Otherwise, ASIC has not made out its case.

38. I will direct the parties to file and serve short minutes of order to provide for the finalisation of the proceeding.

I certify that the preceding four hundred and sixty-six (466) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Associate: 

Dated:       21 December 2018