Law reform and recent cases are imposing further restrictions on how financial products can be marketed and sold. The restrictions will impact:
- marketing and sales practices and training;
- product design and customer facing materials; and
- distribution and referral strategies and agreements.
Marketing can be general or even personal advice
Retail clients are required to be provided with additional protections if the information that they receive constitutes “financial product advice” and even greater protection if the advice falls within the definition of “personal advice”. It is challenging to market a product and at the same time comply with the additional obligations that apply when giving “personal advice”.
The Full Federal Court recently considered these definitions in ASIC v Westpac Securities Administration Limited. Key takeaways from the decision include:
- There is no bright-line distinction between advice and sales.
- In determining whether advice is given, one must look at the communication or exchange in its whole context and assess whether some express or implied recommendation or statement of opinion is made. A minute examination of parts of the text in a flowing conversation is unlikely to assist.
- Whether “financial product advice” and “personal advice” are given does not just depend on the intent of the provider or what they have considered. If a reasonable person might reasonably have expected the provider to have considered the person’s objectives, financial situation or needs, the provider will have given personal advice even if the provider didn’t actually consider any of those factors.
- Whether advice is given depends on the all the circumstances of the communications with each client, which makes it difficult to ensure that individuals marketing products do not give advice. The court considered telephone calls with 15 customers who had superannuation accounts and, as part of a broader campaign, received a letter followed by a call. All the circumstances of the call – what was said, what was not said, the tone and character of the call – meant that the provider’s recommendation could reasonably be seen to have taken up and considered the customer’s objectives and concerns. The general advice warning that was given to each customer at the beginning of each call in no way changed the message that was being consistently conveyed.
(Westpac has made an application for special leave to appeal to the High Court against the decision of the Full Federal Court.)
Further restrictions on marketing financial products
Further restrictions have recently been implemented or are proposed which will change how financial products can be marketed.
First, fairness appears to be the new black and so should be considered when marketing. For example:
- “Act fairly” was one of the 6 norms of conduct identified by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
- ASIC’s vision is “for a fair, strong and efficient financial system for all Australians” and a Deputy Commissioner was reported as recently describing fairness as having a very useful role in guiding the manner in which a regulator will decide when to intervene, how to intervene and in which cases to intervene.
- In making determinations the Australian Financial Complaints Authority must consider what is fair in all the circumstances.
- The Full Federal Court in ASIC v Westpac expressed doubts about whether the obligation of an Australian financial services licensee to ensure that the financial services covered by the licence are provided “efficiently, honestly and fairly” should be read compendiously in the manner suggested by previous courts.
Secondly, there are other proposed restrictions that will impact on how financial products are marketed and sold:
- From 13 January 2020 the offering of life risk insurance products and consumer credit insurance products in the course of, or because of, an unsolicited telephone call will be prohibited, unless the person has been provided with personal advice in relation to the relevant financial product.
- The Government proposes to introduce legislation by 30 June 2020 to strengthen hawking restrictions, as recommended by the Royal Commission.
- APRA expects to implement the new product responsibility requirements of the Banking Executive Accountability Regime by 1 July 2020.
- Distributors of financial products will have distribution obligations under the new design and distribution laws from April 2021.