The recent High Court litigation between ASIC and Westpac provides an important and timely reminder into the distinction between ‘general’ and ‘personal’ financial services advice. This distinction is important for many reasons, including for companies looking to raise capital from investors.
A person who is in the business of ‘dealing’ in or ‘advising’ as regards financial products must hold an Australian financial services licence (AFSL). An example of a financial product is a share. This is very important for capital raising, which typically involves a company issuing shares or other securities in itself. This is usually accompanied by discussions between the company and investors.
The Corporations Act states that a company that issues securities in itself is (in some situations) not taken to be ‘dealing’ in those securities.  This is the ‘self-dealing’ exception. This means the company does not need to hold an AFSL to issue these securities.
The law also states companies that a company that issues financial products in itself is not taken to be providing a financial service (i.e. not ‘advising’) as regards those products, provided that it does not offer personal advice.  Personal advice includes financial product advice that is given or directed to a person in circumstances where a reasonable person might expect a provider to have considered one or more of that person’s objectives, financial situation and needs.
While the Westpac decision relates to superannuation advice (not capital raising) the principles apply equally to the capital raising context. The decision provides some important pointers and practical differences between the provision of general and personal advice.
The Westpac Federal Court decision
Westpac undertook a campaign to encourage existing customers to roll over superannuation into their BT Funds Management Ltd (BT) account. Neither the Westpac entity nor BT held an appropriate AFSL and were therefore not licensed to provide personal financial advice.
Westpac called customers to transfer funds from accounts with other superannuation funds into their BT accounts. The campaign was carefully calculated to increase Westpac’s funds under management by giving ‘no more than general advice’. Westpac provided a general advice disclaimer at the beginning of each phone call. This disclaimer stated the advice about to be given was no more than general advice. However, members were subsequently asked directly about their personal objectives.
The High Court was asked to consider whether the financial product advice was personal advice. That is, whether the advice was given or directed to Westpac customers in circumstances where a reasonable person might expect Westpac to have considered one or more of the customer’s objectives, financial situation and needs.
The Federal Court found that Westpac and BT had provided “personal advice”. Westpac appealed this decision to the High Court.
The High Court decision
Westpac failed in its appeal against ASIC in the High Court. In dismissing the appeal, the High Court found that Westpac had provided “personal advice” without an AFSL.
The majority found that “personal advice” is given where the adviser (in this case, Westpac) has considered, or a reasonable person might expect them to have considered, one or more of the person’s objectives, financial situation or needs. The Court found this is what occurred on these calls.
The Court considered it would be reasonable that each customer would have expected Westpac to have considered at least “one or more of the person’s objectives, financial situation or needs” when recommending the roll-over. This was due to the nature of Westpac’s business, its pre-existing relationship with these clients and its experience and expertise in financial matters like superannuation,. Especially as Westpac elicited from each member an indication of their personal objectives such as saving fees and improving the manageability of superannuation, and had then proceeded to confirm the validity of the expressed objectives and appropriateness of the roll-over service to achieve them.
Importantly, the High Court stated:
- A person’s objectives need not be unique to make them personal and even generic objectives do not disqualify statements from being personal.
- A single warning that advice offered is only “general advice” is inadequate for the purposes of the dispensing of personal advice. General advice warnings are to be assessed objectively and considering all circumstances.
Businesses without the proper authority under an Australian Financial Services license must beware. For a company looking to raise capital:
- Consider your interactions with investors and instruct your staff accordingly to ensure that personal advice is not being disseminated.
- Disclaiming that advice provided is merely general advice is a good first step. However, insufficient to disclaim any advice given, which at face value, is personal advice.
General financial product advice must in no way engage with personal (regardless of how common) objectives, financial situation or needs of any individual. Wording and phrases that do so should be omitted.
ASIC also provides some helpful pointers, including:
- Take into account the overall impression created by the communication and the surrounding circumstances. This includes considering the means by which relevant personnel are remunerated. If personnel stand to benefit personally depending on client decisions then an intention to influence can be more readily inferred; and
- Recommendations or statements of opinion (or reports of them) are more likely to be financial product advice, unlike communications of only factual information. This is unless the communication suggests or implies a recommendation. It can assist if the provider states at the outset only factual information is being given without implying any recommendation; and
- Provide a disclaimer that no financial product advice is given and consumers should obtain independent advice before making a decision. Although (as per Westpac) this will not assist if the provider does in fact offer personal advice.
Keypoint Law advises many corporations and businesses looking to raise or invest capital. For more information please contact James Halliday email@example.com
 Westpac Securities Administration Ltd v Australian Securities and Investments Commission  HCA 3.
 Corporations Act 2001 (Cth) s. 766C(4)(d).
 CA Regulation 7.1.33H. Note: the issuer must also advise the person that it is not licensed to provide financial product advice and recommend the person obtain and read a PDS; as well as notifying about any available cooling off period.
 CA s. 766B(3)(b).
 Westpac Securities Administration Ltd v Australian Securities and Investments Commission  HCA 3, 13.
 Ibid, 63.
 Ibid, 78.
 ASIC Regulatory Guide 36: Licensing: Financial product advice and dealing
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please also note that the law may have changed since the date of this article.