The Financial Conduct Authority ( FCA ) has fined Axa wealth, part of the AXA group, £ 1.8m for failing to give suitable investment advice to customers.

The investment failings put a significant number of customers at risk for buying unsuitable investment products. AXA has agreed to contact all customers who may be affected by its investment advice failings and a third party will oversee the review. Any customer who suffered a loss over the poor financial investment advice will be compensated and they will be able to withdraw from the investment.

Although we applaud the action taken by the FCA,  a fine of £1.8m (reduced for good behaviour) against the total of £440m of investments made is a significant enough deterrent, especially as the customers all seemed to be near or at retirement age.

The regulator said 26,000 customers were wrongly advised in a range of investment products while Axa staff pocketed lucrative bonuses for making the sales.

According to the FCA, customers were put into stocks and shares Isas, open-ended investment companies (Oeics) and investment bonds without Axa assessing their attitude to risk and losses.

The customers were mainly nearing retirement and largely not experienced investors. But Axa failed to confirm how much risk its customers were prepared to take or explain the dangers in clear terms.

The FCA said Axa sold around 37,000 products to 26,000 customers between 15 September 2010 and 30 April 2012 in branches of Clydesdale Bank, Yorkshire Bank and the West Bromwich Building Society.

 

AXA fined and reviews investment sales for advice failings

The Financial Conduct Authority (FCA) has fined AXA Wealth Services Ltd (AXA) £1,802,200 for failing to ensure it gave suitable investment advice to its customers. The failings put a significant number of customers at risk of buying unsuitable products. Many of AXA’s shortcomings only came to light during a review by the FCA.

In addition to the fine, AXA has agreed with the FCA to contact all customers who may be affected by its failings and a third party will oversee a review of any issues identified as a result of this exercise. Any customer who suffered loss as a result will be fully compensated and those sold inappropriate products will be able to switch or withdraw their investment.

Currently, customer losses due to AXA’s failings may be low due to movements in the stock market since the advice was given.  In agreeing with AXA that it will contact customers, the FCA has acted pre-emptively to ensure customers are provided with an opportunity to avoid potential losses during future stock market downturns.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said:

“AXA fell short of its responsibilities to its customers, many of whom were elderly, retired and financially inexperienced. Its failures resulted in an unacceptable risk of AXA selling products which were unsuitable for its customers. AXA’s failures were avoidable, coming despite repeated warnings from the FCA’s predecessor to the industry about investment advice.

“The FCA will continue to take tough action against firms who fail to comply with their responsibilities to ensure that consumers get a fair deal.”

Between 15 September 2010 and 30 April 2012 AXA sold approximately 37,000 investment products to 26,000 retail customers through AXA’s advisers based in the branches of Clydesdale Bank, Yorkshire Bank and the West Bromwich Building Society. These customers, who tended to have low levels of experience in investments and were typically in or nearing retirement, invested £440 million with AXA.

However, the FCA, which has an objective to secure an appropriate degree of protection for consumers, found serious defects in the way AXA advised customers on investments.  In particular, AXA did not always:

  • Confirm how much risk its customers were prepared to take with their investments and explain in clear terms the level of risk they would be taking.
  • Ensure that customers could manage financially if their investment fell in value.
  • Gather sufficient information from customers before making investment recommendations to them.
  • Advise customers about how product charges would affect the returns they could expect to receive from their investment.
  • Properly explain to customers why recommended investments were considered to be suitable for them.

The FCA also found that AXA failed to have effective controls over the bonuses it paid to sales advisers. There was an unacceptable risk of sales advisers making inappropriate investment recommendations to customers in order to qualify for bonus payments.

Customers who received investment advice between 15 September 2010 and 30 April 2012 in the branches of Clydesdale or Yorkshire Banks or West Bromwich Building Society and have any questions relating to the advice they received should contact AXA on the following number or by visiting the following website:

AXA Customer Contact Number: 08448 800482

Website: www.axa.co.uk/fcafaqs

AXA agreed to settle at an early stage of the investigation and therefore qualified for a 30% discount.

Original FCA Release : www.fca.org.uk/news/axa

FCA Final Notice 2013: AXA Wealth Services Ltd

1. ACTION
1.1. For the reasons given in this Notice, the Authority hereby imposes on AXA a financial penalty of £1,802,200

1.2. AXA agreed to settle at an early stage of the Authority’s investigation. AXA therefore qualified for a 30% (stage 1) discount under the Authority’s executive settlement procedures. Were it not for this discount, the Authority would have imposed a financial penalty of £2,574,595 on AXA.

2. SUMMARY OF REASONS
2.1. It is of fundamental importance that firms providing investment advice take reasonable care to ensure that they give suitable advice to customers. AXA failed to do so. This affected its sales of investment products through sales advisers based in the branches of Clydesdale Bank, Yorkshire Bank and West Bromwich Building Society in the period 15 September 2010 to 30 April 2012 (the “Relevant Period”). AXA breached Principle 9 of the Authority’s Principles for Businesses and related Rules.

2.2. AXA is part of the wealth management arm in the UK of a major global financial services group and is prominent in the retail consumer market. During the Relevant Period, it sold 37,000 investment products through its Bancassurance business to approximately 26,000 retail bank and building society customers, with investments totalling £440 million in value. AXA’s customers tended to have low levels of experience of investments. They were typically in or near retirement age.

2.3. There were a number of serious deficiencies in AXA’s processes for advising customers about investment products. In particular, AXA:

1) until 31 October 2011 failed to have an adequate process in place for establishing the level of risk its customers were willing and able to take with their investments. In particular, AXA:

(a) asked customers to indicate their attitude to investment risk by selecting from a number of categories which described risk in unclear terms. AXA did not ensure that sales advisers checked customers’ attitude to, and understanding of, the level of risk they would be taking with their investments; and

(b) failed to ensure that sales advisers adequately considered whether customers were able financially to bear the risks associated with the investment products recommended to them (capacity for loss);

2) failed to have an adequate process in place to ensure its sales advisers gathered and took into account all of the information they were required to obtain from customers before making investment recommendations to them. Relevant information about customers, including their knowledge and experience of investments, was missing from many AXA sales files

There was no evidence in the files that this missing information was gathered at all;

3) failed to have an adequate process to ensure sales advisers appropriately considered customers’ investment objectives when assessing the suitability of investment products for them;

4) failed to have adequate guidance in place for advising customers on the impact of charges applicable to investments recommended to them;

5) failed to ensure that customers were provided with adequate explanations as to why investment recommendations were considered to be suitable for them in view of their circumstances. The Authority reviewed 24 suitability reports and in all cases the reports failed to contain sufficient information to justify the recommendations made to customers. The majority of sales advisers subject to mystery shopping conducted on behalf of AXA failed to provide sufficient explanations of their recommendations to customers during meetings with them;

6) failed to have effective controls in place over the incentives paid to sales advisers. In the absence of these controls, there was an unacceptable risk of sales advisers making inappropriate recommendations to customers in order to qualify for bonus payments; and

7) failed to put in place adequate procedures for monitoring sales of investment products. AXA’s compliance monitoring staff failed to identify promptly and investigate effectively potentially unsuitable sales. In 2012, an external consultant appointed by AXA disagreed with the compliance staff’s assessments of sales files in 79% of cases because they were not demonstrably suitable.

2.4. The Authority considers AXA’s failings to be serious because:

1) customers were exposed to a significant risk of making investments which were unsuitable for them and of not being adequately informed about their features and risks. The failings were widespread across AXA’s sales process for investment products and potentially affected a large number of customers, including investors who were inexperienced or may have been vulnerable (for example, due to their age, medical or other personal circumstances); and

2) the Authority has repeatedly stressed in its publications the importance of firms taking appropriate steps to ensure suitable investment advice is given to customers.

2.5. The Authority recognises that AXA proactively made a number of improvements to its sales process over the Relevant Period. This included AXA reviewing its processes in response to the Authority’s Guidance Consultation of January 2011 (and Finalised Guidance of March 2011) titled ‘Assessing Suitability: Establishing the risks that a customer is willing and able to take and making a suitable investment selection’, together with the Authority’s letter dated 14 June 2011 to chief executive officers of wealth management firms. In July 2011 AXA also instructed third party consultants to review parts of its sales process and a sample of sales files. However, AXA failed overall to exercise reasonable care to
ensure its recommendations to customers were suitable until 30 April 2012

2.6. Customer complaints during the Relevant Period were low (82 complaints in total) and customer detriment may be low, as at the date of this Notice, due to increases in the value of the stock market since the start of the Relevant Period. However, there is the potential for customers to suffer losses on their investments in the future during downturns in the stock market. In view of this, the Authority has acted to ensure that AXA takes pre-emptive action to deal with future possible customer detriment as well as any detriment that has taken place to date.

2.7. Following discussions with the Authority, AXA has, therefore, agreed to contact all customers who made investments through sales advisers in the branches of Clydesdale and Yorkshire Banks and West Bromwich Building Society during the Relevant Period (15 September 2010 to 30 April 2012). AXA will carry out a review of any issues identified as a result of this contact exercise. AXA will compensate all customers who have suffered loss as a result of any failings on its part. It will also enable any customers who have been sold a product that is unsuitable for them to exit the product and avoid potential future losses. This review will be overseen by an independent third party.

2.8. Customers who made investments in the period 15 September 2010 to 30 April 2012 acting on the advice of sales advisers and have any questions relating to the advice they received should contact AXA


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Tim Capper reports on Financial Mis-Selling for Maple Leaf Financial. Our aim is to ensure you get honest advice and proper guidance to ensure a suitable recommendation can be made to pursue a financial claim


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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.