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Wealth Advisors Should Heed Warning from AXA’s FCA Fine

Tuesday, 15 October 2013

The insurance company AXA was recently handed a hefty £1.8 million fine by the Financial Conduct Authority (FCA) for failing to provide suitable investment advice to its customers.

The regulator concluded that AXA had fallen short of its responsibilities to inexperienced retail customers in respect of various investment products.

Wealth advisors and those selling investment products to retail customers should take note of the FCA’s tough approach when it comes to protecting ordinary investors from unacceptable risk.

Background to AXA’s Fine by the FCA

A review by the FCA found that between 15 September 2010 and 30 April 2012, AXA sold approximately 37,000 investment products to 26,000 customers through AXA’s advisers based in branches of Clydesdale Bank, Yorkshire Bank and the West Bromwich Building Society.

The majority of these customers had little experience of investment planning, and a significant proportion were either in or entering retirement.

Affected customers invested a total of £440 million in AXA policies and schemes, an average of approximately £17,000 per person.

What Were AXA’s Shortcomings?

The FCA’s review stated that there were several shortcomings in the way that advisers approached customers:

  • The level of risk involved in investments was not always explained to or agreed to by the customer.
  • The financial impact to customers if investments were to fail was not considered, as insufficient background information was collected.
  • There was a failure to discuss how future product changes would impact on the return on investments.
  • There was a failure to fully explain why they had recommended particular products to the customers and why these were considered suitable.

The review also found a lack of control in relation to the amount paid to advisers as bonuses and that there was an intolerable risk that advisers may make unsuitable investment recommendations in order to qualify for a bonus.

The Importance of Compliance for Investment Professionals

The financial crisis has left little room for investment professionals who do not take regulatory compliance seriously enough. The FCA is actively pursuing compliance failures in all forms and, as AXA’s fine shows, stiff financial penalties are also being handed out.

Clear and consistent compliance policies are essential to avoid falling foul of an increasingly tough regulatory environment. Any firm or individual investigated by the FCA regarding compliance issues should seek immediate legal advice.

The Importance of Compliance for Retail Investors

The FCA is a regulatory body that aims to ensure that financial services can be accessed with confidence and that the products sold meet investors’ needs. Firms that offer investment products and services must act in the best interests of their clients. The FCA also aims to ensure that contracts and policies are written clearly so that consumers can understand them and are treated fairly.

If you believe that you have suffered financial loss as a result of compliance your investment advisors’ compliance failures, it is important that you seek independent legal advice as soon as possible.

For specialist advice regarding compliance issues or compliance failures please contact James Crighton or telephone 0207 611 4848.

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