There are several tectonic forces at play which are all converging to impact on sales and distribution of financial products. The key forces are:

  1. general law developments affecting general advice and personal advice;
  2. the new anti-hawking changes;
  3. the evolution of the efficiently, honestly and fairly obligation (click here to read our detailed discussion in previous articles in this series in parts 1 and 2 of Spotlight on efficiently, honestly and fairly); and
  4. the new ASIC design and distribution regime (covered in an upcoming article).

This edition of I-LEAP (Integrated Legal Enhanced Assisted Productivity) like others in the series (on disclosure, operations, and compliance and governance) is designed to assist financial institutions gain business and operational efficiencies through legal options and solutions.


1. General advice and personal advice

The issue of the distinction between and blurring of, these two forms of financial product advice has been around forever.

The key most important integer of change really stems from the ASIC v Westpac decision.

The ratio of the decision was that personal advice had been given even though this was not intended.

The sting in the tail of the legal concept of personal advice in the Corporations Act is that it contains a second objective limb which can operate to convert adviser/client interactions into personal advice where a reasonable person might expect the provider of the advice to have considered one or more of the client’s objectives, financial situation and needs.

Clearly, this test applies in one sense irrespective of the intention of the provider of the advice, although a threshold issue is the extent to which a disclaimer can negate the application of this second limb.

In the Westpac decision the court observed that a general advice warning appeared only at the start of the interaction. It is clear the usage of multiple general advice warnings would be desirable to fortify a negation of the second objective limb of the personal advice definition and hence ensure the client interaction is general advice only.

In our view, a suitable disclosure or series of disclosures can legally negate this second limb. Although it may be that a court would increasingly adopt a “National Exchange”[1] type approach of requiring the disclaimer to be very prominent, the equivalent of being in neon lights as it were.

But, in our view, another technique can be employed which is seeking and obtaining formal confirmation from the client that they understand that the advice is not intended to take their personal circumstances into account.

This could be obtained in writing if possible or via a recording in other appropriate circumstances.

Of course if the adviser actually takes the client’s personal circumstances into account, such a disclaimer will be entirely ineffective and a personal advice interaction will be present.

An additional layer is added to the above equation by reason of some of the judicial commentary in the ASIC v Westpac Full Federal Court decision (now on appeal to the High Court).

In this case, as mentioned, the court found that the advice was in fact personal advice, despite this not being the licensee’s intention. What is most significant, perhaps, is the fact that some observations in the case suggest that the second objective limb of the definition of personal advice might be triggered in circumstances where the client might anticipate that the adviser was acting in their best interests. From here the expectation is said to arise that the adviser was giving personal advice. This emerges from the judgment of Justice O’Bryan, who observed (at paragraph 390):

An individual that has invested superannuation with an institution would reasonably expect that institution to act for their benefit and in their interests in relation to their superannuation affairs. Such an expectation arises from the nature of the product, which is held by a financial institution on trust for the superannuation member. In my view, the combined facts that a financial institution calls and gives advice to an individual who is a member of a superannuation fund held or managed by that institution about rolling over superannuation points towards the circumstance described in [the second limb of the personal advice definition].


2. Anti-hawking changes

The proposed changes to the anti-hawking regime (“AHR”) are very significant to future distribution and advice models as they will tighten up sales restrictions which are already quite tight.

The key elements of the proposed new AHR are as follows:

(a) The two-sided nature of the prohibition

It has always been the case that the prohibition captured not just offers to the client to the relevant financial product but also invitations to the client to apply for the financial product.

The proposed extension covers requests or invitations to ask for or apply for a financial product.

As is currently the position, this prohibition is activated when the offer, request or invitation is made in the course of, or because of, an unsolicited meeting with the client.

These changes are significant as they substantially nullify an argument that one can approach the relevant client and effectively influence them to apply for the relevant financial product.

There is of course a question as to whether it may still be possible for the financial product issuer or licensee to simply mention the relevant financial product and rely on the client’s proactive actions to apply for the product. This scenario is explored further in section 5 below.

(b) Exemptions under the new AHR

Whilst a multitude of exemptions exist under the new AHR, the vast majority pertain to very specific types of transactions of specific financial products and it is not proposed to run through these.

A few of these however are not transaction specific and are worthy of attention.

The first relates to advice given to a client by a person who is required by the best interests obligations to act in the best interests of the client in relation to the advice. So this would capture a situation where the adviser is providing personal advice. In other words this captures any personal advice situation as section 961B(1) of the Corporations Act applies a best interests obligation to all personal advice interactions by requiring that: “The provider must act in the best interests of the client in relation to the advice.”

We explore this example further in section 5 below.

The second is the exemption that relates to add-on insurance products; more specifically to an offer of, or a request or invitation relating to, a financial product that is an add-on insurance product in relation to a product or service … sold to a consumer by: (i) the person making the offer, request or invitation; or (ii) another person with whom that person has an arrangement …”.

Various exceptions to this exclusion apply.

The real issue here is what products will qualify as add-on insurance products.

We canvass this aspect in section 4 below.


3. Parameters of the concept of “unsolicited contact”

The concept is expressed in terms of a contact which is wholly or partly in one or more of the forms of:

(a) a telephone call;

(b) a face-to-face meeting;

(c) any other form that a reasonable person would consider creates an expectation of an immediate response from the other person,


(d) the client did not request the contact; or

(e) if he or she did request, the request meets certain specifications.

The specifications are:

  • the request was for the issue, transfer or sale of the financial product;
  • the request was a positive act;
  • the request was clear and the client understood what was being requested;
  • if the request indicated a form of contact, the contact is in that form;
  • the request was made within 6 weeks before the contact occurs;
  • the request was not withdrawn before the contact;
  • any variations to the request before the contact occurs must be taken into account; and
  • the request may be varied or withdrawn at any time.

So clearly the new AHR is very explicit about what constitutes unsolicited contact.

Emails are unlikely to meet this definition as would paper correspondence. In addition to what the EM calls “ordinary corporate transactions such as sending investors offer documents” (paragraph 1.42).

Texts are also unlikely to meet this definition unless the text itself creates a reasonable expectation of an immediate response.

So the question obviously arises as to what other forms of contact would trigger this criterion.

The EM is useful in this regard when it refers to online video chats, web chat services and conversations in instant messaging apps.

Of course door-knocking was the historical genesis of this requirement.


4. Add-on insurance products

The AHR will not apply to offers to sell or issue add-on insurance products if the offer is subject to the rules for selling add-on insurance products under the proposed deferred sales model regime for add-on insurance products. As explained in the EM, insurance providers will be subject to either the deferred sales model or the AHR, but not both at the same time (paragraph 1.28).

An add-on insurance product is defined in the relevant proposed draft Bill as follows:

An add-on insurance product, in relation to another product or service (the principal product or service), is a financial product that:

(a) is offered or sold to a consumer in connection with the consumer acquiring, or entering into a commitment to acquire, the principal product or service as a consumer; and

(b) is offered or sold by:

(i) the provider of the principal product or service; or

(ii) another person, in accordance with an arrangement between that other person and the provider of the principal product or service; and

(c) manages financial risk (within the meaning of section 12BAA) relating to the principal product or service; and

(d) either:

(i) is a contract of insurance; or

(ii) provides for the consumer to benefit from a contract of insurance to which the provider of the financial product is a party.

One issue is whether the add-on insurance was to insure a risk which arises under the original product issued. Under the proposed definition extracted above, a product will only be an add-on insurance product if it manages financial risk relating to the principal product or service.

Again, some useful guidance is given in the EM. An insurance product offered on the standalone market, for example, will not be an add-on insurance product or service (paragraph 1.25), even if intended to compliment a general type of existing insurance. Mortgage protection insurance offered by an insurer with an arrangement with the bank mortgagee will be add-on insurance when offered to the mortgagor customer in connection with the provision of a mortgage (see Example 1.2 in paragraph 1.25).


5. Structural issues

(a) Raising awareness of financial product

Clearly a key structural issue is whether it is still possible to raise the awareness of the client in relation to the relevant financial product but without crossing the line into the realms of the prohibition, viz asking the client or inviting them to apply for the financial product. It is clear, as pointed out in the EM (paragraph 1.30) that:

“… an offeror cannot avoid the hawking prohibition by approaching a consumer and asking the consumer to request a financial product or by asking a consumer to fill in an application to be sold, transferred or issued a financial product.”

However the EM points out that certain interactions are exempted where “… another regime already gives appropriate consumer protection in relation to the offer of that financial product or where the consumer is expected to have enough knowledge to adequately assess the financial product offered” (at paragraph 1.60). This is reflected in the exemption to the prohibition referable to the advertising provisions contained in section 1018A of the Act.

More specifically, if a financial product is available for acquisition, then an advertisement or publication that is reasonably likely to induce people to acquire the product may be made if the criteria in section 1018A(1)(c) – (e) of the Corporations Act are satisfied; essentially referring readers to the product disclosure statement.

A similar exemption exists where the financial product is not yet available (under section 1018A(2)(c) – (f)).

Various other circumstances permitted under section 1018A will also be allowable for the purposes of the AHR.

So in view of this specific exemption, it is clear that a marketing campaign linked to the permitted advertising regime under the Corporations Act could be harnessed.

This then leaves it up to the client as to whether they will decide to apply for a relevant financial product. This model will provide some mileage to product issuers to remain in the direct market.

So to summarise this potential route, a product issuer could initiate a sales campaign where it commences the campaign by sending the target audience an advertisement or potentially by contacting them by telephone and then sending them the “advertisement” (although see our comments in section 6 below on the causation point).

(b) Using the personal advice route

As mentioned earlier, this route is broad. It does not require a link between the financial adviser and the relevant product per se but simply that the adviser is subject to the best interests duty.

So this is why this exemption provides a distribution opportunity, but also a distribution challenge. This is because the exemption will only work if a personal advice model is used.

But what about a scoped or scaled personal advice model?

Could not the product issuer give advice purely on the product sought to be sold, provided the advice was personal advice?

In the view of the authors, the answer is yes; although this model does raise issues of just how far a scaled/scoped advice model can go. It seems nonetheless incontrovertible that scaled/scoped advice is possible under a personal advice model.

The Corporations Act (in section 961B(2)) deals with the issue somewhat obliquely; it only explicitly refers (in the note to the sub-section) to the scenario where “a client may seek scaled advice” and in this case “the inquiries made by the provider will be tailored to the advice sought”.

But in the new AHR, could the product issuer operate a sales campaign where it uses scaled advice, purely on the product it seeks to distribute/sell?

The reference to scaled advice being sought by the client as per the note to section 961B(2) and not being framed by the product issuer/licensee may be deliberate. Nonetheless ASIC acknowledges in RG 244 that the scope of the advice may be agreed between the adviser and the client (see the examples of giving information and advice at paragraph 100).

So if the approach to the client by the product issuer/licensee clearly stipulated that personal advice will be provided but only in relation the particular product, then this should be possible.

This is subject to the adviser satisfying the best interests obligations which include providing appropriate advice (section 961C).

It still remains that:

  • the reasonable steps inquiries (set out in section 961B(2)) will be shaped by the scoped/scaled advice;
  • the ancillary best interests obligations, such as to give appropriate advice should also be affected and moulded by the scope of the advice.

(c) The multi-faceted financial product

Another potential sales model to consider is the use of a compendious financial product whereby:

  • there is only one financial product on issue;
  • where the person already holds that product,

in which case certain product upgrades can be made to that product without triggering the new AHR.

As pointed out in the EM (at paragraph 1.61), “The new hawking prohibition will not apply to financial providers who are contacting an existing customer about an existing financial product that has not lapsed, been cancelled, or otherwise expired, including a renewal of that financial product”.

We would add to this, interactions relating to a variation or extension of the existing financial product.

We have done considerable analysis of what such a model might look like and our team would be pleased to discuss this analysis with you.


6. Some observations on the causal connection in the new AHR

The concept and reach of the words “because of” are not straightforward.

In RG 38 (at paragraph 31), ASIC cites the Macquarie dictionary definition of:

“for the reason that;’ due to the fact that”

The EM reflects this when it states: (as paragraph 1.34):

“An offer is made ‘because of’ a meeting, telephone call or other contact if the offer is caused by, or is a result of, the unsolicited contact.”

In RG 38, ASIC distinguishes situations where causes are “remote and insignificant” (at paragraph 32).

In the EM, the words “significant or trivial” are used (at paragraph 1.34).

Both the RG and the EG state that causal connection will depend on all the facts and circumstances including:

  1. the nature of the initial unsolicited contact;
  2. how much time has elapsed between that contact and the offer; and
  3. whether there are any intervening events that should be regarded as breaking the connection between the initial unsolicited contact and the offer (at paragraph 33 of RG 38 and 1.35 of the EM).

The RG and EM are also synchronised on when the causal connection might be seen to be broken (paragraphs 34 and 1.36 respectively) and when it may not generally be broken (paragraphs 35 and 1.37 respectively). Reference is made here to the nexus being broken where the consumer obtains personal advice or a significant period of time has elapsed since the initial or any other unsolicited contact with the client.

It is submitted that causality is a hard peg to hang one’s hat on in terms of arguing that an interaction with a client does not cause the customer to respond. As pointed out by the EM, it will be difficult to seek to avoid the causal connection by arranging, or providing the opportunity for, the client to request the product in a subsequent interaction, viz. “The inclusion of the words “because of” seek to address the situation in which a financial provider makes unsolicited contact with a consumer, but the actual offer, request, or invitation is made during subsequent contact that is solicited by the consumer” (at paragraph 1.33).

We comment further on the reach of this concept in section 8.


7. Observations on the client request exemption

As observed earlier, an exemption exists where the financial is specifically requested by the customer or reasonably within the scope of the consumer’s request. The examples and guidance given in the EM are useful namely where:

  1. the consumer requested a product with a particular purpose or function;
  2. the consumer requested a broad class of products (for example life insurance);
  3. the consumer requests a product (for example a home loan) and a reasonable person would consider related financial products that provide cover for associated risks (for example home insurance).

The EM contains some useful guidance in this regard and essentially discusses 3 levels of client request.

The first is the most straightforward where the request is sufficiently clear to identify what is being required (paragraph 1.48).

The second is where a broader request is made, in which case, “… the request must clearly identify the purpose for which the consumer needs a financial product before a financial product provider is able to offer a product within the scope of the request” (also at paragraph 1.48).

The third is where the consumer makes an unclear request. Here, importantly, the EM (at paragraph 1.49) states that “… it is expected that the financial product provider will seek out more information to get a clear indication of the type of financial product the consumer is interested in discussing or the type of financial risk the consumer is interested in managing through a financial product.

This last observation is interesting. To the extent the person interacting with the client seeks out more information about the client’s request, this could very well bring the interaction into personal advice. In this case, the interaction would be covered by the personal advice exception previously discussed.

Certainly in this last level of interaction, there will be scope for a product issuer to refine the client’s scope of request and truly better align the request with the products the product issuer is offering.


8. Exploring the client request route

As mentioned above, the AHR carves out certain contact requested by the client from being unsolicited (see section 7 above).

Two distinct scenarios can be distinguished. The first is where the client requests a contact. A limitation here is where the product issuer invites the client to make the contact. In other words what is the situation if the product issuer sends a prompt or facilitates the client to make a request for contact? In this scenario, the issue is whether the contact is truly unsolicited (see the expressed view in the EM at paragraph 1.33 in section 6 above).

The second is where the client contacts the product issuer and issues a request in relation to a particular product or expresses a need or a purpose. In this scenario the issue is not so much whether the contact itself is unsolicited but whether the client has made a request for contact in relation to the particular financial product which is offered, invited or issued. Most of the examples in the EM deal with this second scenario.

Our commentary on this second scenario is set out in the next section.

Before, however, turning to that discussion, a few points need to be made about the first scenario.

In the current version of section 992A, there is no definition of “unsolicited contact”.

Rather the prohibition applies if the relevant offer etc occurred in the course of, or because of a specified unsolicited contact.

Because of the breadth of the concepts of “in the course of” and “because of”, there was at least some uncertainty as to whether a product issuer could contact the client, get the client to request a contact with the product issuer and then the client could voluntarily decide to apply for the product (although the EM seems to negate that possibility – see above).

Given there is a new definition of “unsolicited contact”, which contains an exemption where the other person requests the contact, would it be possible for the product issuer to invite the client to request a contact?

Provided the various elements of this exception are satisfied, then if the client is prompted by an unsolicited contact to set up a subsequent contact with the product issuer, then the issue will be whether any subsequent invitation, offer or issue arose because of the first contact which was unsolicited or the second contact which was not unsolicited, or even both?[2]

On our reading of the client request exemption, if a product issuer makes an unsolicited call to a potential customer inviting them to request a face-to-face meeting to discuss the purchase of a particular financial product or type of financial product, and the potential customer then clearly requests that meeting, then a reasonable person might consider any offer of that particular product or type of product made within the subsequent contact to be within the scope of the person’s request for the further contact, and so long as the meeting occurs within 6 weeks from the request, that subsequent meeting would fall within the client request exemption.

However, the problem remains whether the offer during the subsequent contact would still be “because of” the original unsolicited contact, in which case the offer would fall within the AHR prohibition.

It is submitted that there is no clear-cut answer to this question. From a logic and policy point of view, the relevant nexus could be seen to be broken by the client’s subsequent request for contact. Where ASIC in RG 38 indicates situations where the causal connection is broken, then this is what we would see as a policy decision, rather than necessarily a legally determined outcome. On the one hand, it would be useful if ASIC proffered a view on this. On the other hand, a product issuer can always send an advertisement for the product to the client and rely on the exemption discussed in section 5(a) above.


9. What guidance can be taken from the examples in the EM?

As we know, the request of the client must be clear, positive and informed.

It is beyond the scope of this edition to traverse all examples.

Rather it is useful to consider these examples from the point of view of the two scenarios described in section 8 above, namely:

  • scenario 1 where the client is taken to positively request the contact;
  • scenario 2 where the client is taken to positively make a request in relation to a particular financial product which is invited, offered or issued.

The EM notes that: “A consumer must take an active step to initiate a request for contact, such as calling a product issuer and asking to discuss a financial product or submitting a form online indicating that the financial provider should contact the provider” (paragraph 1.48).

It goes on to say that: “A positive request should involve a conscious decision by the consumer to seek a financial product. A positive request would not simply be an ambiguous or vague statement, a compliant answer to a leading question, or failing to ask that future contact not take place when given an opportunity to do so” (paragraph 1.47).

Examples given are:

  • typing a phone number into an insurance website which clearly offers a call back to discuss life insurance (which is said to be permissible);
  • when applying for life insurance online, not un-ticking a box which says the customer agrees to be contacted with regard to insurance products (which is said to be not permissible).

But do the examples cast any light on the situation where, as canvassed in section 9, the client’s request is preceded or facilitated by the product issuer providing the client an opportunity to request a contact through some interaction, such as an email or text?

Under the new AHR if the product issuer sends a communication which asks for the client to apply for the product, this is clearly captured.

That is, what if the communication asks for the client to request simply a contact?

The bulk of the relevant examples relate to the client proactively requesting a contact (eg filling in a website request) and do not deal with a situation where the product issuer facilitates that contact request (such as by sending a website link to the client).

This said, the EM discusses scenarios where it refers to “a consumer is incentivised to hastily consent to be contacted about a financial product, for example as part of the terms and conditions of entering a competition…” (at paragraph 1.52).

An example given in this context is a client filling in a competition form in a shopping centre to win $100 and where the form discloses that their details would be forwarded to a business partner who would contact them with regard to an annuity.

This example arguably touches on our scenario of the client being approached to agree to a future contact but at the best is ambiguous as:

  • it is not clear whether the client was approached by the competition organiser or whether they approached the organiser;
  • the client seems to be agreeing to being contacted, rather than requesting a contact; and
  • the example hinges off the client not being given sufficient opportunity to understand what they were agreeing to.

Hence, the example (Example 1.8 at paragraph 1.52) notes: “As Christian agreed to make the request for contact with little time or information to consider annuities, he is unlikely to understand that he may requesting to be contacted and his request may result in the offer of a financial product.”

The remainder of the examples relate to the scope of the request made by the client.

The examples traverse scenarios which are said to be permissible where:

  • the product offered directly corresponds to the request by the client, eg the client requests a specific life insurance product and is offered this;
  • the client requests a generic type of product and is offered one or more of these, eg the client requests information about life insurance products generally;
  • the client expresses a need or purpose and the product offered corresponds to this, eg the client expresses a need to be covered for insurance for an investment property the products offered are house building and landlord insurance;
  • the client makes a request for a product and the product issuer also offers a product which covers risks associated with the product (eg a mortgage is the core financial product but the product issuer offers home insurance).

We have considered these issues and other related issues in detail. Please let us know if you would like to arrange a presentation or discussion with us on either the general operation of the new AHR or how it might impact specifically on your business.

[1] National Exchange Pty Ltd v ASIC [2004] FCAFC 90 concerned an offer by National Exchange to shareholders in a company for the purchase of that company’s shares, and the inclusion in the written offer document of a qualification that the purchase price was to be paid by fifteen annual instalments. The majority (Jacobson and Bennet JJ) stated that (at [50]-[51]) “A document which, when read as a whole, is factually true and accurate may still be capable of being misleading if it contains a potentially misleading primary statement which is corrected elsewhere in the document but without the reader’s attention being adequately drawn to the correction… The principle which applies to those cases is that the qualifying material must be sufficiently prominent or conspicuous to prevent the primary statement from being misleading…”. In that case, the disparity between the primary representation and the qualification was so great that the qualification was insufficient to draw the true position to the attention of the ordinary shareholder, and all members of the Court agreed with the trial judge that National Exchange had engaged in misleading and deceptive conduct.

[2] Courts commonly grapple with the question of whether a particular result is caused by one or more separate events and whether a subsequent event has the effect that the initial event should no longer be seen as a cause (see, eg. March v E & MH Stramare Pty Ltd (1991) 171 CLR 50).


Michael Vrisakis
Michael Vrisakis
+61 2 9322 4411
Philip Hopley
Philip Hopley
Special Counsel
+61 2 9225 5988
Tamanna Islam
Tamanna Islam
Senior Associate
+61 2 9225 5160
Sky Kim
Sky Kim
+61 2 9225 5573