The Financial Conduct Authority [FCA] has fined AXA Wealth Services Ltd [AXA] £1.8m (which would have been £2.5m if AXA had not qualified for a 30% early settlement discount) for failing to ensure it gave suitable investment advice to its customers. The FCA in its final notice concluded that the failings put a significant number of customers at risk of buying unsuitable products. Worse still it also concluded that many of AXA’s shortcomings only came to light during the review by the FCA.
What went wrong as AXA failed?
It is a long held regulatory principal that “a firm must take reasonable care to ensure the suitability of its advice …..” In the judgment of the FCA, AXA failed to do this finding “serious defects in the way AXA advised customers on investments”. The FCA concluded 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 concluding that there was an unacceptable risk of sales advisers making inappropriate investment recommendations to customers in order to qualify for bonus payments.
Who is affected?
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. The mis-selling was compounded as the customers typically had low levels of experience in investments and were often in or nearing retirement (57% were over 60 years of age and approximately 47% were retired). These customers had invested £440 million with AXA and the investment per customer was approximately £17,000.
What will AXA do next to compensate loss?
AXA will contact 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) to carry out a review of any issues identified. AXA will be required to 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.
Ask questions about the advice given
With regard to investments there has always been an adage ‘that the value of investments can go down as well as up’ and clearly there will always be investors who understood the risks associated with their investments and are now suffering poor returns. However, that is a very different scenario to the one in this case and many others, where investors now look at their investments and don’t understand how they were ever suited to their needs. These people need to look long and hard at their investments and then ask further questions about the advice they were given.