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‘People buy on emotion’: How Axa failed thousands of elderly investors

Axa Wealth’s sales advisers were told to give thousands of elderly investors “a reason to buy” risky investment products without properly checking how much they could afford to lose, the FCA has revealed.

AXA Wealth was this morning fined £1.8m by the regulator for failing to ensure it gave suitable investment advice to its customers.

The FCA says it found “serious defects” in the way Axa advisers in Clydesdale Bank, Yorkshire Bank and the West Brom Building Society advised customers on investments.

Axa Wealth’s final notice sets out the catalogue of failures between 15 September 2010 and 30 April 2012 which put the investments of 26,000 customers at risk and led to the firm being fined.

According to the notice, 100 per cent of the 24 Axa suitability reports reviewed by the FCA did not contain sufficient information to justify the recommendations made to clients, the majority of whom were over 60 years of age.

The regulator says Axa did not do enough to make sure its advisers were properly checking customers’ investment objectives when assessing the suitability of investment products. In addition, the FCA says Axa did not monitor its investment sales adequately.

These problems were compounded by an incentive scheme which paid advisers thousands of pounds in bonuses. These bonuses, which could treble an adviser’s salary, were based on sales targets and the amount clients invested.

The FCA says the bonus scheme gave rise to an “unacceptable risk” that clients would be given unsuitable investment recommendations by Axa advisers.

In addition, the regulator says Axa did not provide its advisers with enough information to check the suitability of particular investments for customers.

For example, sales advisers were told to gather information about investors’ “goals/dreams/aspirations” because these “give the customer a reason to buy, people buy on emotion”.

The template suitability report used by advisers until 31 October 2011 was also found to contain “potentially misleading” statements and included a suggestion that the risks associated with Axa’s investment products were similar to deposit accounts.

Under a section titled ‘Objectives’, the report described customers as wishing:

“…to have both the security of deposit type accounts and the potential for greater returns from collective investments.”

FCA director of enforcement and financial crime Tracey McDermott says: “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.”



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. It’s no surprise that the behaviours evidenced here is as a direct result of an incentive scheme – if you want sales staff to do (or not do) certain things then you incentivise them accordingly. I would like to know what the relevant business risk committees did when the incentive arrangements were put in place, presumably they turned a blind eye, and what about the FSA? This is hopefully a good example of how the FCA want to do things differently….let’s not wait for bad outcomes, instead let’s put the onus on firms to act in the customers interests and not take advantage of behavioural biases.

  2. As well written and observed this article is, it is simply another cataloging the dreadful record of an industry where honesty and trust are virtually forgotten values.
    How long will it be before a business defines itself by real values as opposed to Meerkats, Opera Singers, or any other obscure gimmick designed to push product.
    I believe that the public is desperate for a brand that values honesty and trust as its core values and in a sector that deals with the lives of individuals and businesses, protecting and securing their financial futures, apart from token lip service, these qualities are given scant regard.
    I have developed a simplified range of policies designed to engender trust through clarity.
    The brand is called Honesty.
    This must be the way forward for an ever demanding and increasingly savvy public.
    This is a bold brand statement, however it is simply satiating the consumers ultimate demand from their provider.
    Honesty………. the best Policy.

  3. It would be interesting to know just what these products were that were claimed to offer “the security of deposit type accounts and the potential for greater returns from collective investments”. They sound very like 5 year investment bonds that guarantee to return at maturity at least the original sum invested, regardless of the performance of the underlying investments, in which case (unless the guarantor were to fail and/or the investments were to encashed mid-term) the risk to capital would have been minimal. If, on the other hand, the product/s in question incorporate no such (conditional) guarantees of security, then their structure will have been fundamentally misrepresented, in which case regulatory action appears to be justifiable.

    Have any of AXA’s customers who committed money to these products actually lost money? If so, and if they were genuinely unaware that this could happen and under what circumstances, a process exists to ensure that they’ll be fully compensated. That’s a commercial risk for AXA, for which it carries (and pays for) appropriate responsibility.

    Or is it a case of the FSA seeking ever more to micro-manage every stage of the advice process from start to finish across the entire industry, in its endless quest to create a perfect world that can never actually be realised? At this rate, selling or advising on anything will be subject to such an enormously long and ever-evolving list of processes that must be undertaken and compliance boxes that must be ticked that selling/advising on just about anything will become prohibitively costly. The advice gap, about which the FSA claims to be concerned, will continue to widen. Where’s the balance between good processes (unarguably very laudable, in theory) and what is commercially viable (about which the FSA seems to be entirely unconcerned)?

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