Axa Wealth Services (Axa) was today fined £1.8m for giving poor investment advice to elderly and inexperienced customers, even though only 82 people complained. So what went wrong?
The Financial Conduct Authority (FCA) found in a review that poor investment advice at three regional branches of Axa's bancassurance business led vulnerable investors to buy products that may not have been suitable for them.
Tied advisers at Clydesdale Bank, Yorkshire Bank and West Bromwich Building Society had given poor advice to approximately 26,000 investors between September 2010 and April 2012, leading them to buy a total of £440m worth of products, the FCA found.
It ruled that Axa had breached Principle 9 of the Authority's Principles for Businesses and related Rules.
Only 82 customers complained and the FCA acknowledged that customer detriment from the sales may be low overall.
It also acknowledged that Axa had taken steps to improve its sales process during the period but said it had "failed overall to exercise reasonable care to ensure its recommendations to customers were suitable until 30 April 2012".
The seven ways Axa went wrong
Axa did not have a proper process in place for measuring whether products were suitable for its customers in terms of the risk they were willing or able to take. Axa advisers used categories for customers to choose from which were unclear in terms of risk and what's more, the advisers did not check customers' attitude and understanding of risk. Sales advisers also did not check whether customers were able to bear potential losses of the products they were sold. This was until 31 October 2011
2) Background checks
There were gaps in customer files which suggested that Axa's advisers may have never performed comprehensive background checks on their customers before selling them products. Information about customers, including their knowledge and experience of investments was missing from many files, the FCA said. Axa should have had a process in place to make sure these information checks were completed each time before a sale.
3) Investment objectives
Similarly to the lack of a system to ensure background checks were completed, Axa did not ensure sales advisers appropriately considered customers' investment objectives either before making recommendations. This meant the advisers could not have been sure the products were suitable for what the customers had in mind.
Axa did not give clear or adequate guidance for customers about charges. Customers were left unclear about the various charges that would apply and their impact on investments.
5) Product justification
Axa advisers did not explain to their clients properly why the particular investments were chosen for them and why they were deemed to be suitable. The FCA found that this information was insufficient in all of the 24 suitability reports it reviewed. Mystery shopping checks conducted on behalf of Axa also found that advisers were not justifying investments to their clients properly.
6) Incentives to sell
Axa advisers were incentivised to sell products by a laxly controlled bonus scheme. The FCA found advisers were taking unacceptable risks to sell products and made inappropriate recommendations to customers in order to qualify for bonus payments.
7) Sales monitoring
Axa's compliance staff failed to monitor the sales of investment products properly. They failed to identify and investigate potentially unsuitable sales promptly and effectively. 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.
Any customer who suffered loss as a result of the sales will be fully compensated and those sold inappropriate products will be able to switch or withdraw their investment.
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